The Ninth Circuit’s view of the vicarious liability doctrine was broad on both the
financial benefit and supervision prongs. With respect to the financial benefit prong, the Ninth
Circuit, citing Fonovisa, agreed with the district court that “financial benefit exists where the
availability of infringing material ‘acts as a “draw” for customers.’”^1708 The Ninth Circuit relied
on the district court’s finding that more users register with the Napster system as the quality and
quantity of available music increases.^1709
With respect to the supervision prong, the Ninth Circuit noted that “Napster has an
express reservation of rights policy, stating on its website that it expressly reserves the ‘right to
refuse service and terminate accounts in [its] discretion, including, but not limited to, if Napster
believes that user conduct violates applicable law ... or for any reason in Napster’s sole
discretion, with or without case.’”^1710 The Ninth Circuit ruled that this reservation of rights
policy was, of itself, sufficient evidence of Napster’s right and ability to supervise its users’
conduct, and (in one of the most important aspects of the entire opinion), gave rise to a duty to
police the Napster system: “To escape imposition of vicarious liability, the reserved right to
police must be exercised to its fullest extent. Turning a blind eye to detectable acts of
infringement for the sake of profit gives rise to liability.”^1711
This holding raises a number of significant issues. First, the ruling that a reservation of
rights policy by itself satisfies the supervision prong of the vicarious liability test puts service
providers in a potential Catch 22 situation with the DMCA. As discussed further below, under
Section 512(i) of the DMCA, in order to be eligible for the safe harbors of the DMCA, a service
provider must adopt and reasonably implement a “policy that provides for the termination in
appropriate circumstances of subscribers and account holders of the service provider’s system or
network who are repeat infringers.” Under the Ninth Circuit’s ruling in Napster I, however, the
adoption of such a policy would seem to expose the service provider to vicarious liability under
the supervision prong. The service provider is therefore put in a Catch 22 – whether it should
avoid adoption of a reservation of rights policy in order to avoid common law liability, thereby
potentially giving up its DMCA safe harbors, or preserve its DMCA safe harbors by adopting
such a policy, thereby potentially increasing its exposure to vicarious liability.
Second, the duty to police seems contrary to Section 512(m) of the DMCA, which states
that a service provider need not “monitor[] its service or affirmatively seek[] facts indicating
infringing activity, except to the extent consistent with a standard technical measure” in order to
be eligible for the DMCA safe harbors. Thus, the Ninth Circuit’s opinion in Napster I seems to
require that a service provider do more than is required by the DMCA in order to avoid common
law secondary liability.
(^1708) Napster I, 239 F.3d at 1023 (quoting Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 263-64 (9th Cir.
1996)).
(^1709) Napster I, 239 F.3d at 1023.
(^1710) Id.
(^1711) Id.