The concept of a “financial interest” affecting vicarious liability for copyright infringement is derived from United States case law. In MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005), the Supreme Court described it in these terms:
One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it.⁹ Although “[t]he Copyright Act does not expressly render anyone liable for infringement committed by another,” these doctrines of secondary liability emerged from common law principles and are well established in the law.
⁹ We stated in Sony Corp. of America v. Universal City Studios, Inc. that “the lines between direct infringement, contributory infringement and vicarious liability are not clearly drawn” …
The words used in the question, “direct financial interest,” come from Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304 (CA2 1963). That case was about whether a department store was liable for the sales of a concessionaire who sold infringing records in the department store, under a profit sharing agreement with the department store. The court held that this relationship resulted in secondary liability:
Section 101(e) of the Copyright Act makes unlawful the “unauthorized manufacture, use, or sale” of phonograph records. Because of the open-ended terminology of the section, and the related section 1(e), courts have had to trace, case by case, a pattern of business relationships which would render one person liable for the infringing conduct of another. It is quite clear, for example, that the normal agency rule of respondeat superior applies to copyright infringement by a servant within the scope of his employment.
Realistically, the courts have not drawn a rigid line between the strict cases of agency, and those of independent contract, license, and lease. Many of the elements which have given rise to the doctrine of respondeat superior, may also be evident in factual settings other than that of a technical employer-employee relationship. When the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials — even in the absence of actual knowledge that the copyright monopoly is being impaired — the purposes of copyright law may be best effectuated by the imposition of liability upon the beneficiary of that exploitation …
The Supreme Court found that such liability did not exist in the Betamax case, 464 U.S. 417 (1984). While Sony had a financial interest in selling a product which was used to infringe copyright, it did not have enough control over its customers’ actions to be liable for their infringement:
In [other] cases, as in other situations in which the imposition of vicarious liability is manifestly just, the “contributory” infringer was in a position to control the use of copyrighted works by others and had authorized the use without permission from the copyright owner. This case, however, plainly does not fall in that category. The only contact between Sony and the users of the Betamax that is disclosed by this record occurred at the moment of sale. The District Court expressly found that “no employee of Sony, Sonam or DDBI had either direct involvement with the allegedly infringing activity or direct contact with purchasers of Betamax who recorded copyrighted works off the air.”
But in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005), the Supreme Court found Grokster liable for copyright infringement by the users of their peer-to-peer file sharing software. While the software had substantial non-infringing uses, the Supreme Court upheld MGM’s claim on an “inducement theory” because there was evidence that Grokster actively encouraged copyright infringement:
Sony’s rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law …
The classic case of direct evidence of unlawful purpose occurs when one induces commission of infringement by another, or “entic[es] or persuad[es] another” to infringe, as by advertising. Thus at common law a copyright or patent defendant who “not only expected but invoked [infringing use] by advertisement” was liable for infringement “on principles recognized in every part of the law” …
The rule on inducement of infringement as developed in the early cases is no different today. Evidence of “active steps ... taken to encourage direct infringement,” such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe, and a showing that infringement was encouraged overcomes the law’s reluctance to find liability when a defendant merely
sells a commercial product suitable for some lawful use.
Whether an internet or VPN provider is liable for its users’ copyright infringement would depend on the specific evidence produced to the court. The court would need to interpret the above principles and consider other relevant case law. Proof of a “direct financial interest” in the infringement would be relevant, but not necessary or sufficient, to establish liability.
The DMCA safe harbour provisions, 17 U.S.C. § 512, may also apply, as compliance with these provisions could exclude any liability which the copyright holder was otherwise able to establish. However, “this is irrelevant unless [the defendant] is contributing to infringement; a noninfringer doesn’t need a safe harbor”: Flava Works Inc. v. Gunter, 689 F.3d 754 (CA7 2012).
