- Secondary Liability of Investors
(a) The Hummer Winblad/Bertelsmann LitigationFor a discussion of this litigation, see Section III.C.2(c)(8) above.(b) UMG Recordings v. Veoh NetworksThe plaintiffs, who owned rights to copyrighted sound recordings and musical
compositions allegedly used without authorization by users submitting user-generated content to
a site operated by Veoh Networks, sought to hold three of Veoh’s investors secondarily liable
under theories of contributory liability, vicarious liability, and inducement of infringement. In
UMG Recordings, Inc. v. Veoh Networks, Inc.,^3021 in a decision designated not for publication,
the court dismissed the plaintiff’s complaint with leave to amend. With respect to contributory
liability, the court held that merely exercising ownership to select a Board of Directors cannot
invite derivative liability.^3022 “Nor is there a common law duty for investors (even ones who
collectively control the Board) ‘to remove copyrighted content’ in light of the DMCA.”^3023 The
court distinguished the Hummer Winblad/Bertelsmann litigation on the ground that the court
there upheld the complaints against the investors in view of the allegation that the investors had
specifically ordered that infringing activity take place on the Napster site. With respect to
vicarious liability, the court noted there was no direct financial benefit to Veoh’s investors in the
form of fees from users or advertisers, and mere potential future increase in financial value of the
investment was not sufficient. With respect to inducement to infringe, there was no allegation
that the investors encouraged Veoh to infringe directly, thereby distinguishing the Grokster
case.^3024
On appeal, the Ninth Circuit affirmed. The plaintiffs argued that even if summary
judgment was properly granted to Veoh on the basis of the DMCA safe harbor, the investors
could remain potentially liable for their related indirect infringement because the district court
did not make a finding regarding Veoh’s direct infringement, and the investors did not qualify as
services providers who could receive DMCA safe harbor protection. The Ninth Circuit noted
that although it might seem illogical to impose greater liability on the investors than on Veoh
itself, the court assumed without deciding that the suit against the investors could properly
proceed even though Veoh was protected from monetary liability. Reaching the merits of the
plaintiffs’ secondary liability arguments, however, the court held that the district court properly
dismissed the complaint against the investors.^3025
(^3021) 2009 U.S. Dist. LEXIS 14955 (C.D. Cal. Feb. 2, 2009), aff’d sub nom. UMG Recordings, Inc. v. Shelter Capital
Partners LLC, 667 F.3d 1022 (9th Cir. 2011).
(^3022) Id. at 11.
(^3023) Id.
(^3024) Id. at 13-18.
(^3025) UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022, 1045-46 (9th Cir. 2011).