Advanced Copyright Law on the Internet

the infringing material on the site enhanced the site’s attractiveness or drew customers.
Accordingly, the court dismissed the claim for vicarious infringement.^2186

(q) Perfect 10 v. Giganews

(For a discussion of vicarious liability issues in this case, see Section III.C.2(n) above.)

(r) Masck v. Sports Illustrated

(For a discussion of vicarious liability issues in this case, see Section III.C.2(o) above.)

(s) Disney Enterprises v. Hotfile

The facts of this case are set forth in Section III.C.6(b)(1)(iii).x below. With respect to
the plaintiffs’ claim of vicarious liability and the requirement of financial benefit, Hotfile
acknowledged that infringing files drove some amount of revenues to Hotfile. The connection
between infringement and sales was further evidenced by a dramatic drop in Hotfile’s income
after the complaint was filed and Hotfile implemented a three-strikes policy and technologies to
ferret out infringers. Even if infringement was not central to its success, the court found it
undeniable that Hotfile financially benefitted from infringement by attracting some users, which
was sufficient to satisfy the financial benefit prong.

With respect to the control prong, the court rejected Hotfile’s argument that it could not
determine which files on its system were infringing. The court cited authority that courts have
viewed the control prong expansively under common law, finding that service providers have the
capacity to control the activities of their users simply by virtue of providing the means to commit
direct infringement. In any event, in this case, Hotfile controlled the means of infringement by,
among other things, mandating user registration and hosting the infringing materials on its own
servers. In addition, Hotfile had a stated policy that permitted it to control user activity and to
exclude users, and maintained that it had exercised that control in policing content. Hotfile had
also adopted technology that it claimed was effective in filtering and targeting infringing works.
The court found that these actions therefore belied Hotfile’s argument that it lacked control
because it had no search function and no way to identify or remove infringing files. Hotfile had
failed to properly exercise its control in view of the number of users who were blatantly
infringing. Accordingly, the court granted summary judgment to the plaintiffs on their claim of
vicarious liability.^2187

In Dec. 2013, the MPAA announced a settlement under which the district court had
awarded damages of $80 million to the plaintiffs and ordered Hotfile to either shut down its

(^2186) Flava Works, Inc. v. Gunter, 2011 U.S. Dist. LEXIS 50067 at 13-16 (N.D. Ill. May 10, 2011), rev’d on other
grounds, 689 F.3d 754 (7th Cir. 2012).
(^2187) Id. at 129-134. The court also found one of Hotfile’s founders, who was deeply involved in all aspects of the
business, personally liable for Hotfile’s vicarious liability. Id. at *134-147.