YouTube CampusKaiser Wahab is a media, venture, and tech attorney at the New York law firm of Wahab & Medenica LLC. His clients range from Fortune 500 companies to startups, and his practice deals with issues confronting businesses competing in technology, media, brand, and intellectual property-driven environments. Read more on his blog or follow him on Twitter @BizMediaLaw.
“Too Big to Fail” is the albatross of the Great Recession. Now under the specter of a double dip, does the phrase apply to online content distribution as well? On the surface, banks that bet on mortgage securities do not belong in the same sentence as YouTube. So how does the world’s largest content platform resemble Wall Street? Simply, YouTube may be the recipient of a government bailout, albeit a less obvious one.
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This year, the 2nd Circuit U.S. Appeals court may have to effectively turn the tube off in deciding Viacom v. YouTube. Should it conclude YouTube deliberately induced copyright infringement by users, it might apply the MGM Studios, Inc. v. Grokster, Ltd. ruling to award Viacom monumental damages "of at least one billion dollars." Viacom would love this, arguing YouTube engaged in systematic content theft, leveraged that content as “startup capital,” and avoided licensing costs that law-abiding competitors pay. Yet, Viacom admits present day YouTube is not a viable target and has trimmed its complaint to target YouTube’s early years.
Yet, is this as simple as some generic infringer getting just deserts? Or is YouTube something different?
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Caselaw Cliff Notes
In the Sony “Betamax Case,” the Supreme Court created a copyright “catch” to shield providers of new technologies. In 1984, Sony knew consumers would use its VTR decks to record TV shows. However, the Supremes rescued Sony by reasoning it was not an infringer if its devices were "widely used for non-infringing purposes [or] . . . merely capable of substantial non-infringing use."
Twenty years later, the Supremes in the Grokster case added a new catch on the catch so that a tech provider could still be deemed a copyright infringement “inducer,” even if the tech had a real “non-infringing use.” It was this catch that allowed the Supremes to read Grokster’s history, management, and brand message to conclude Grokster’s operation was premised on inducing copyright infringement by users. And we know what happened to Grokster.
For now, the lower court held YouTube was absolutely shielded from the Grokster ruling under the ’98 Digital Millennium Copyright Act (DMCA), so long as YouTube removed copyrighted material upon notice. Despite the fact “a jury could find that the defendants not only were generally aware of, but welcomed, copyright infringing material,” the lower court held that YouTube was absolved, since its general knowledge could not nix DMCA protection. And understandably, copyright holders bemoan this framework, arguing they must play a “whac-a-mole” game against an avalanche of user uploads.
Arguably, the Grokster ruling was a response to useful technologies being leveraged as “obvious” piracy machines. As such, its goal may have been to end DMCA “whac-a-mole” with those piracy machines. Should the 2nd Circuit conclude the lower court got it wrong (a genuine possibility), many commentators believe early YouTube was identical to Grokster in its tolerance and, perhaps, encouragement of infringement. In fact, Viacom has honed in on startup YouTube, making its case partly on founder emails (e.g., “We're going to have a tough time defending the fact that we're not liable for the copyrighted material on the site because ... one of the co-founders is blatantly stealing content from other sites and trying to get everyone to see it”). Hence, a Viacom victory under the Grokster inducement standard cannot be taken lightly.
Why Is YouTube Too Big Too Fail?
YouTube is not just another dotcom. It is widely considered to be the most visible face of 21st century American ingenuity. The numbers alone bear witness. By 2007, YouTube made up 10% of all Internet traffic, exceeding the web's entire bandwidth of 2000. By 2008, 25% of all Google searches were for YouTube content.
Now YouTube is an engine of the democratic process. YouTube's summary judgment brief even made the point that all of 2008’s presidential candidates posted to YouTube (that trend shows no sign of slowing). YouTube is also a cultural beacon and exporter of American values. In mid-2011, NPR published an article that extolled the role of YouTube in the Arab Spring.
Hence, by measure of YouTube's gravitas and relationship with the wider web, the "too big to fail" claims can be hard to ignore. As a result, the 2nd Circuit's decision will have daunting ramifications. If YouTube loses (even if Google pays up), it will deal a severe blow to the American narrative that startups have told over the last 10 years -- that good ideas can flourish in a democracy to produce wealth, value, and a better world for all. While upstarts and established players alike may swoop in to fill YouTube's shoes, will any of them have a chance at the same success? What is to prevent them from facing crippling lawsuits? (Consider that Veoh, once thought of as a YouTube competitor, still caved despite a court victory.) And what will YouTube’s lost gravitas mean for America’s Internet brand, especially given the anti-SOPA movement? This Pandora’s box could spur the court to parse the law in order to bail YouTube out.
Judicial “Bailouts”
Bailouts, as we've come to know them since 2008, are artificial government market rescues. "Judicial bailouts" are part of that legacy. Where an institution’s dive could pose a death blow to the world order, it may be bailout-worthy. And so goes the "too big to fail" logic: A company that seduces the market into a vice grip gets a government pass, even though it might have been reckless.
Critically, TBTF companies are not limited to cash infusions. Indeed, where a legislative body or a court interprets (or creates) the law in a way calculated to vaporize damages for unlawful conduct, it can be seen as a bailout (of the judicial variety). Consider the Supreme Court’s recent and debatable prohibition of vaccine-related lawsuits against pharmaceutical companies, which many argued was a pharma “bailout.” In her dissent, Justice Sotomayor accused the majority of imposing “its own bare policy preference over the considered judgment of Congress” stripping “vaccine-injured children of a key remedy that Congress intended them to have.”
Similarly, a YouTube bailout could flow from policy preference to shelter innovation. This could mean a ruling where Grokster applies, but with a newly engineered “catch” that does not gut precedent.
The Redemption Doctrine
Many have noted litigation against YouTube has been glacial, with virtually identical claims against Grokster being adjudicated in a fraction of the time. Whether due to Google’s deep pockets or planetary alignment, YouTube has benefited mightily from the delay. Since ‘05, it has morphed from disruptor to deal maker, instituting an array of anti-infringement machinery and inking deals that make the Net the “go-to” content platform for a generation. In addition, courts have been bombarded with the argument that content industry lawsuits have stymied innovative technologies with flawed beginnings but robust futures.
It is precisely that narrative that might serve as fuel. At the time of Grokster’s comeuppance, there was no assurance it could go legit. Due to litigation, whatever promise Grokster had was never fulfilled. In contrast, while YouTube in 2006 was a question mark, by 2012 it arguably became a singular model for online content. YouTube proved it could wean itself off inducing infringement and establish a viable, mostly non-infringing identity. Thus, as powerful as Viacom’s arguments over young YouTube’s culpability are, equally powerful is Viacom’s tacit admission that current-day YouTube is not culpable.
Hence, it is possible the 2nd Circuit will leverage YouTube’s arc of redemption and, like the Supremes, devise a catch of its own for the occasion. This catch could be dubbed the “redemption doctrine” -- a case by case exception to Grokster’s inducement standard, whereby a tech provider would escape liability by demonstrating a committed and successful transformation from “inducer” to market pillar. By doing so here, the 2nd Circuit could avoid a TBTF meltdown and preserve the Grokster ruling, resulting in a de facto bailout.
Image courtesy of iStockphoto, JasonDoiy
This story originally published on Mashable here.
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