Copyright, the Internet and Efficient Risk Bearing

Later this month, the Department of Commerce will host the fifth in a series of roundtables and forums that are designed to focus on a critical issue–the operation of the notice and takedown system under the Digital Millennium Copyright Act (DMCA). The current DMCA system requires online service providers including YouTube, podcasters, and others to remove copyright infringing content from their sites once they have been made aware that an infringement has occurred. One proposal that merits serious consideration is using an efficient risk-bearing standard to improve the DMCA notice and takedown system.

The Efficient Risk-Bearing Standard

Federal appeals court Judge Richard Posner has framed the point directly in stating that the DMCA safe harbors simply ask ISPs to do what they “can reasonably be asked to do to prevent the use of [their] service[s] by ‘repeat infringers.’ ” That is the essence of the least cost avoider (or efficient risk bearer) standard of common law, as Judge Posner has explained in other contexts, such as in determining liability of companies that cause environmental harm.

The DMCA was designed to balance the interests of commercial growth with protecting intellectual property rights on the Internet. The DMCA contemplates liability for ISPs not only for direct infringement, but also when they cannot claim safe harbor protection. These situations arise when they have actual knowledge of infringement by others and do not take appropriate actions; when they have constructive knowledge similar to that required in other contributory infringement contexts; or when they have the right and ability to reduce infringements from conduct that they reasonably can control.

One of the most basic principles underlying liability rules is that legal responsibility should fall on those who most cost-effectively can limit or eliminate harm. The shape of common law’s tort rules largely is organized around this principle, and so are rules for enforcement of contracts and property rights, including intellectual property rights.

For example, the concept of “due care” that historically has been central to tort law tests for negligence incorporates much the same set of evaluations as an efficiency-based approach to liability. The core question for evaluating whether someone has exercised due care is whether the precautions taken were all that reasonably should have been taken. Reasonableness in this context turns mainly on the cost-effectiveness of the precautions. Individuals (and enterprises) are not required to take precautions that cost more than the value of the harms the precautions can be expected to prevent, nor are they required to take precautions when another individual can prevent the same harm at far less cost.

Experts Agree

The principle of efficient harm-avoidance also represents a broad consensus among legal scholars. Even those who prefer different fault-based rules or strict liability rules embrace legal tests designed to produce efficient risk-bearing. Scholars from both sides of this divide especially endorse liability for any party that is uniquely well positioned to avoid harm, finding liability rules for those settings much easier than cases in which both parties must act to achieve the efficient risk reducing outcome. Efficient harm-avoidance is particularly important in situations where the expense of identifying and pursuing those directly responsible for the harm makes direct deterrence impracticable. In those instances, the prospect of secondary liability creates an incentive for the party able to prevent the harm at the lowest cost to take steps to do so.

Without the motivation of avoiding secondary liability, the least cost avoider would have little reason, from an economic perspective, to make efforts to minimize the harm. Consequently, civil law holds those liable for their contributions to legal infractions of contributory liability when:

1. There is reason to know that products or services they provide will be used in ways that violate the law or that harm others.

2. There is a relatively simple (cost-effective) way for the sellers to prevent the harm

Despite widespread judicial precedents over many decades, bolstered by academic support, numerous technology company advocates contend that web sites wholly should escape copyright liability so long as they block or otherwise remove infringing material for which they have actual, specific knowledge —regardless of the service provider’s ability to cheaply and efficiently limit infringement from material on its site. This flies in the face of established principles of legal responsibility, efficient risk avoidance, and secondary liability in copyright law. The efficient risk-bearing standard maintains an appropriate balance between rights and exceptions to ensure that copyright can be meaningfully enforced on the Internet.