Another Win for the Record Companies in an Inducement Claim Against Lime Wire
By Sharona Hakimi – Edited By Ryan Ward
Arista Records LLC v. Lime Group LLC, No. 06 CV 5936 (KMW) (S.D.N.Y. May 11, 2010)
On May 11, 2010, the Southern District Court of New York granted summary judgment against Lime Wire for inducing copyright infringement of Arista Records’ music, but denied summary judgment for either side on Arista’s contributory infringement claim. The court held that Lime Wire committed a “substantial amount of copyright infringement,” induced others to commit copyright infringement, and engaged in unfair competition using its LimeWire application. Additionally, the court held Lime Wire’s chairman and CEO, Mark Gorton, and its principle investor, the Lime Group, liable for the inducement.
The Wall Street Journal Law Blog offers a brief summary of the case. Ars Technica and Eric Goldman discuss the case and the court’s inducement analysis. The New York Times provides background and reports on the reactions of academics and industry members to the case.
Lime Wire owns LimeWire, a peer-to-peer file-sharing program that allows its users to freely distribute copyrighted and uncopyrighted music and videos “via an Internet-based network known as the ‘Gnutella network.’” In 2006, Arista Records and twelve other record companies initiated the present action against Lime Wire. At the time the suit was filed, LimeWire was reported to have four million users and annual revenues of $20 million.
The district court applied the inducement test adopted by the Supreme Court in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, holding that LimeWire’s technology itself is not illegal but that it is unlawful to promote or encourage illegal uses of that technology. Even though Lime Wire had asked its users to check a box marked “I will not use LimeWire for copyright infringement,” the court found that Lime Wire did not engage in “meaningful efforts to mitigate infringement.”
Though the case has been hailed as a significant win for the recording industry, most peer-to-peer services available today use technologies that are very different from those discussed in Grokster. However, the decision is novel because the presiding Judge Kimba Wood allowed the plaintiffs to pierce the corporate veil and assign liability to the company’s CEO Mark Gorton. The court found that Gorton, as Lime Wire’s “ultimate decision maker,” “directed and benefited from many of the activities that gave rise to [Lime Wire]’s liability.” Additionally, Gorton was liable for inducement because he made public relations and advertising decisions, and helped market LimeWire to former Napster users.
Judge Wood also held that secondary infringement liability applies to both federal and common law copyright claims. While sound recordings made before 1972 do not receive federal protection, they are eligible for common law protection. Thus, the court had allowed the plaintiffs to recover for Lime Wire’s infringement of sound recordings made prior to 1972 under the common law. According to the decision, “a claim for infringement pursuant to New York common law consists of two elements: (1) the existence of a valid copyright; and (2) unauthorized reproduction of the work protected by the copyright.” The court then noted that New York courts have “recognized the possibility for secondary liability under the common law” and proceeded to apply a common law analysis to Arista’s secondary liability claims against Lime Wire’s CEO and primary shareholder for copyright infringement.
Sharona Hakimi is a third-year student at Harvard Law School. Her interests include literature, xkcd, and online scrabble.