Appeals Court Vacates $1 Billion Piracy Damages Award Against Cox, Orders New Trial

Late 2019, Internet provider Cox Communications lost its legal battle against a group of major record labels, including Sony and Universal.

Following a two-week trial, a Virginia jury held Cox liable for its pirating subscribers. The ISP failed to disconnect repeat infringers and was ordered to pay $1 billion in damages.

Heavily disappointed by the decision, Cox later asked the court to set the jury verdict aside and decide the issue directly, arguing that the “shockingly excessive” damages should be lowered. Both requests were denied by the court, which upheld the original damages award.

Despite the setbacks, Cox didn’t give up. The company believes the district court’s ruling is a disaster for Internet providers. If it stands, the verdict will also have dramatic consequences for the general public, the company warned.

Cox Appealed

In 2021, the Internet provider took the matter to the Court of Appeals for the Fourth Circuit, hoping to reverse the lower court’s judgment. According to the company’s lawyers, “the music industry is waging war on the internet” with these lawsuits.

The entire dispute revolves around the legal obligations of Internet providers when it comes to pirating subscribers. According to the law, ISPs must adopt and reasonably implement a policy that allows them to terminate the accounts of repeat infringers in appropriate circumstances.

The music companies argued that Cox failed to do so. As a result, the ISP should be held liable for vicarious and contributory copyright infringement.

While a jury previously found Cox liable for both types of secondary copyright infringement, Cox believes this was in error. It argued that some issues, including vicarious liability, should have been decided in its favor before they were sent to the jury.

Court of Appeals Reverses Vicarious Liability Ruling

After taking a fresh look at the case and weighing the evidence, the Court of Appeals partly ruled in favor of Cox in a decision handed down yesterday. The court concludes that Cox is not vicariously liable for piracy carried out by subscribers, as it didn’t directly profit from the activity.

The district court previously ruled that Cox was liable, concluding that it profited from not terminating the accounts of repeat infringers, which allowed the company to keep collecting monthly subscription fees. The Court of Appeals reaches a different conclusion.

To establish liability, there should be evidence to show the ISP had a direct financial benefit from the reported copyright infringements. That’s not the case here, according to the court.

“To prove vicarious liability, therefore, Sony had to show that Cox profited from its subscribers’ infringing download and distribution of Plaintiffs’ copyrighted songs. It did not,” the Court of Appeals notes.

Court of Appeals Reverses Vicarious Liability Ruling

The district court previously ruled that Cox could be held liable for failing to terminate subscribers who paid monthly fees. Cox was aware of that and considered the monthly payments when deciding whether to terminate an account or not.

According to the Court of Appeals, this is not enough, as the direct connection between the infringing activity and financial gain is absent.

“The continued payment of monthly fees for internet service, even by repeat infringers, was not a financial benefit flowing directly from the copyright infringement itself,” the decision reads.

“As Cox points out, subscribers paid a flat monthly fee for their internet access no matter what they did online. Indeed, Cox would receive the same monthly fees even if all of its subscribers stopped infringing.”

Piracy Draw and Payment Tiers

The music companies also argued that the ability to pirate through Cox acted as a draw to potential pirates, as evidence showed more than 10% of all traffic on the network was likely piracy-related.

That didn’t convince the appeals court; it notes that people don’t exclusively use their Internet connections to pirate and there’s no evidence to show subscribers favoring Cox over other providers.

“No one disputes that Cox’s subscribers need the internet for countless reasons, whether or not they can infringe. Sony has not identified evidence that any infringing subscribers purchased internet access because it enabled them to infringe copyrighted music.

“Nor does any evidence suggest that customers chose Cox’s internet service, as opposed to a competitor’s, because of any knowledge or expectation about Cox’s lenient response to infringement,” the ruling adds.

Similarly, the music companies’ argument that pirates paid for higher bandwidth tiers that are more expensive, was also rejected.

“Sony has not identified any evidence that customers were attracted to Cox’s internet service or paid higher monthly fees because of the opportunity to infringe Plaintiffs’ copyrights.”

Contributory Infringement Remains

The second liability theory deals with contributory copyright infringement. Here, the music companies had to show that Cox ‘knew’ that piracy would likely occur if it continued to provide its Internet services to particular subscribers.

According to the Court of Appeals, there was sufficient evidence to reach this conclusion. As such, the contributory copyright infringement ruling remains intact.

“The jury saw evidence that Cox knew of specific instances of repeat copyright infringement occurring on its network, that Cox traced those instances to specific users, and that Cox chose to continue providing monthly internet access to those users despite believing the online infringement would continue because it wanted to avoid losing revenue.”

Court Vacates $1 Billion Damages Order

The Court of Appeals’ conclusions are a mixed bag, which may trigger further appeals while having an effect on previously established damages.

Given these new findings, the Court of Appeals concludes that the $1 billion damages award issued by the jury cannot stand. Instead, it is vacated, and a new trial will have to determine the scale of the damages.

Cox is still liable in part and the number of infringed works is unchanged. However, the court feels that, given the new situation, the jury could have reached a different conclusion.

“We have reversed the vicarious liability verdict because Cox did not directly profit from its subscribers’ infringement. Without that legally erroneous finding, the jury’s assessment of at least these damages factors may be different.”

“We therefore vacate the damages award and remand for a new trial on damages,” the court concludes.

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A copy of The Fourth Circuit Court of Appeals order and associated ruling are available here (1, 2)

From: TF, for the latest news on copyright battles, piracy and more.