June 3, 2011
Do Not Forward This Article!
Anthony J. Dreyer and Lauren E. Aguiar
It is an all-too-common workplace
scenario in the digital age: An employee
receives an e-mail containing a weekly
business newsletter to which his employer
has subscribed for years. Thinking the
information will be useful to others at the
company, the employee forwards the e-mail
to his boss and co-workers, and also posts
the report to the company’s intranet site.
He also believes his clients may find the
information valuable (and will no doubt be
impressed by his initiative), so he forwards
the e-mail to dozens of his client contacts.
The employee is certain that he
performed a great service to his company
and its clients with only a few clicks of
his mouse.
What the employee does not realize,
however, is that this seemingly innocuous
business practice could expose him and
his employer to civil liability for copyright
infringement. Worse yet, the damages
could be significant if forwarding the
newsletter or report was a routine practice.
Unless contemplated and permitted
under the terms of the subscription to the
newsletter, each forwarded e-mail may
constitute an unauthorized reproduction
and distribution of the materials, and
therefore a copyright violation. If the
company itself stands to benefit in some
way from this infringement, it also may be
held accountable.
Such was the situation in Lowry’s Reports
Inc. v. Legg Mason Inc.,[FOOTNOTE 1]
a case in which an employer was found
liable for copyright infringement under
similar circumstances. As a result, a jury
awarded nearly $20 million in damages to
the copyright holder.[FOOTNOTE 2]
Although the Lowry’s Reports decision
is now several years old, and companies
have since been on notice of the risk
created by unauthorized electronic
forwards, not all employers have taken
steps to protect themselves, as evidenced
by recent lawsuits filed by publishers of
subscription materials.[FOOTNOTE 3]
These risks are compounded by advances
in technology such as e-mail tracking
software used to determine whether, and
how often, works are being reproduced
without authorization.
Thus, it behooves companies to
understand the risk of being found liable for
copyright infringement by its employees,
and to engage in best practices to reduce
that risk.
WHY SHOULD EMPLOYERS CARE?
U.S. copyright law protects “original
works of authorship fixed in any tangible
medium of expression,” including literary
works.[FOOTNOTE 4] Among the exclusive
rights granted to the owner of the copyright
in a work are the rights to reproduce (i.e.,
copy) and to distribute copies of the work.
[FOOTNOTE 5]
“Copies” of a copyrighted work are
defined as “material objects ... in which
a work is fixed ... and can be perceived,
reproduced, or otherwise communicated,
either directly or with the aid of a machine
or device.”[FOOTNOTE 6] Courts have
long since determined that this definition
of “copies” encompasses purely digital
reproductions.[FOOTNOTE 7] Thus,
copyrights in digital music files, images
of written works, and source code are
infringed when duplicated without
authorization.[FOOTNOTE 8]
It is important to understand that a copy
is likely created in the course of any transfer
of an electronic file between users, whether
through direct connections, file-sharing
programs, uploading and downloading
to servers, or e-mail forwards. When an
employee forwards a publication received
by e-mail, or even an article found on a free
website, the employee has likely infringed
the reproduction and distribution rights in
the material forwarded unless an implied
or express license covers the use (or an
exception such as fair use applies).
Similarly, when an employee posts
third-party material on an internal or public
site, he or she risks violating the copyright
owner’s exclusive right to publicly display
the material.[FOOTNOTE 9]
Even if the employee is acting contrary to
company policy and without authorization,
the employer may be held liable for the
employee’s acts. Two doctrines of indirect
or secondary liability have emerged in the
copyright context that create liability for
those who contribute to or profit from the
direct infringement of others.
First, a party can be held liable for
contributory infringement if it has
knowledge or should have knowledge
of a direct infringement, and induced or
encouraged, or otherwise materially
contributed to, that infringement.
[FOOTNOTE 10] Second, under the
principle of vicarious liability, a party
may be held accountable for another’s
copyright infringement when it: (i) has the
June 3, 2011
right and ability to supervise the infringing
activity and (ii) receives a financial benefit
directly attributable to the infringement.
[FOOTNOTE 11]
The risks are great because copyright
infringement liability can carry heavy
damages. A plaintiff may choose to pursue
either “the copyright owner’s actual
damages and any additional profits of the
infringer,” or (in certain circumstances)
“statutory damages.”[FOOTNOTE 12]
If the copyright owner elects to recover
statutory damages, it can recover between
$750 and $30,000 “as the court considers
just” per registration (not per instance of
infringement).[FOOTNOTE 13]
and weekly reports containing proprietary
analyses and commentary regarding the
stock market. That single edition was sent
to one employee in Legg Mason’s research
department, who, from 1994 to 1999,
regularly faxed copies to branch offices,
where the copies were further duplicated
and distributed.
In 2000, after the employee began
receiving the subscription via e-mail, he
forwarded copies electronically, and also
posted the reports on the Legg Mason
intranet website for use by employees in
telephone calls with brokers.
The problem for Legg Mason was that all
of this distribution was wholly unauthorized
Raise awareness of alternative materials with broad
usage rights. It may be useful for some companies,
especially larger ones, to obtain a license from a
clearing house or collective licensing entity that can
provide rights to a large body of material. The principal
licensing agent for written publications in the United
States is the Copyright Clearance Center. The CCC’s
annual copyright license allows businesses to use
and share internally certain copyrighted materials,
including data collected from thousands of publishers,
in a variety of formats.
However, “the court in its discretion”
also may increase or reduce the statutory
damages based on the infringer’s intent. For
example, if the infringement was willful,
the court may award as much as $150,000
for statutory damages per registration.
[FOOTNOTE 14]
‘LOWRY’S REPORTS’: A CAUTIONARY
TALE
Employers therefore face significant risks
when their employees transfer copyrighted
materials electronically, as evidenced by the
Lowry’s Reports case.
For more than a decade, financial
services firm Legg Mason and its subsidiary
securities brokerage paid for and received
a single copy of Lowry’s Reports’s daily
because Legg Mason only had a subscription
and license for a single copy: Lowry’s
limited its subscription to individuals,
and did not offer “institutional” or “group”
licenses permitting internal reproduction of
copyrighted materials; nor did it allow any
reproduction or further distribution under
its license.
Moreover, the subscription agreement
strictly prohibited unauthorized copying or
dissemination of the report or its contents.
[FOOTNOTE 15]
That the copying of these materials
generallyconstitutedcopyrightinfringement
was not controversial; the court dispatched
with that issue quickly, explaining that
the unauthorized electronic transmission
clearly created copies.[FOOTNOTE 16] The
court found that Legg Mason’s argument that
it had an implied license failed as a matter of
law.[FOOTNOTE 17]
Legg Mason also had argued that the
copying and distribution of the reports solely
within the research department constituted
a “fair use” that would absolve the company
of infringement at least for those copies.
The court rejected the argument, reasoning
that the reports were used for commercial
benefit and that the copying diminished
Lowry’s Reports’ market for additional
subscriptions.[FOOTNOTE 18]
Of more interest, however, is the court’s
determination regarding Legg Mason’s
vicarious liability. The court found that
Legg Mason had the right and ability to
supervise its own employees’ conduct,
specifically noting that the employees
used “company equipment” on “company
time” to engage in the copying of Lowry’s
copyrighted materials.[FOOTNOTE 19]
The court also found that Legg Mason’s
direct financial interest in the copying
was “obvious” in that, “at the very least, its
employees’ infringement saved it the cost
of additional subscriptions to the Reports.”
[FOOTNOTE 20]
Perhaps the biggest concern for
employers, however, is the fact that Legg
Mason’s adoption of an express company
policy prohibiting any infringing activities
was not a defense to infringement. Whether
an employee violated such policy was
irrelevant to any analysis of liability:
Legg Mason’s reliance on company
policies and orders is misplaced.
The law of copyright liability takes
no cognizance of a defendant’s
knowledge or intent. Vicarious
liability attaches regardless of
either ... The fact that Legg Mason’s
employees infringed Lowr y’s
copyrights in contravention of policy
or order bears not on Legg Mason’s
liability, but rather on the amount of
... damages.[FOOTNOTE 21]
BEST PRACTICES
The Lowry’s Reports decision makes clear
that employee dissemination of copyrighted
subscription materials can result in significant
financial liability for the employer.
June 3, 2011
Because of the ease with which electronic
materials can be forwarded, infringement
can quickly become a rampant practice.
In order to protect themselves, electronic
publishers have adopted a number of
measures to try to limit these types of
infringing uses, including by providing
more flexible licensing arrangements, but
also by ramping up enforcement efforts.
Many electronic publishers of
subscription-based publications now use
technologies that can track any forwarding
activities of subscribers. These technologies
let publishers know if recipients are
infringing their works, often long before
company management knows; but
publishers may wait until they have a critical
mass of infringement that they can prove
before sending a cease and desist or claim.
As a result, counsel advising clients in
this area should be mindful of the following
steps that will help a company limit
its exposure.
Where possible, obtain a companywide license for frequently used publications. Whether copying and distributing subscription materials is “authorized” or
“unauthorized” typically is governed by the
terms of the license or subscription agreement governing the content. A company can
limit its exposure by acquiring a license to
copyrighted materials broad enough to suit
its needs.
If you have 20 members of a group
who regularly read a certain publication,
make sure they are all licensed. Although
they are generally more expensive, site
or enterprisewide licenses allow use,
reproduction and distribution content
on a companywide (or divisionwide)
basis, thereby limiting the risks created
by electronic forwards, at least those
occurring internally.
Avoid publishing copyrighted material on the company intranet. Companies
should prohibit the posting of any materials
on a corporate intranet for which the company does not have express authorization.
Even materials found on free, publicly available websites should not be posted on the
company intranet unless the terms of use
expressly permit it. The same risks apply to
external company sites, including websites,
Facebook pages, and YouTube channels.
Instruct employees to forward or post
hyperlinks. As an alternative to forwarding
digital copies, employees may send or post
hyperlinks to copyrighted materials that
are publicly available on the internet, rather
than send or post the materials themselves.
Linking to materials on the original site
generally is not deemed to constitute
copyright infringement as no copies are
made or distributed by merely linking.
[FOOTNOTE 22]
Raise awareness of alternative materials with broad usage rights. It may be
useful for some companies, especially
larger ones, to obtain a license from a clearing house or collective licensing entity that
can provide rights to a large body of material. The principal licensing agent for written publications in the United States is the
Copyright Clearance Center. The CCC’s
annual copyright license allows businesses
to use and share internally certain copyrighted materials, including data collected
from thousands of publishers, in a variety of
formats.[FOOTNOTE 23]
When in doubt, use routing slips for
internal distributions. Companies can
always choose to circulate authorized hard
copies (i.e., the copies received as part of
the subscription) among employees. This
may seem primitive in the digital age, but
it serves as an effective method of avoiding
liability for copyright infringement.
Implement, and police, a copyright
policy. It is important to require all
employees to read and agree to a company
copyright policy. As the Lowry’s Reports
case held, a policy prohibiting copyright
infringement is not a shield against liability;
it nevertheless can reflect on employer intent
and therefore bear on the issue of damages.
Of course, because liability attaches
regardless, the ultimate goal is compliance,
not mere notice. Thus the policy should be
clear and easy to understand, describing
exactly what type of conduct is prohibited,
including specific examples of prohibited
conduct and materials that may not be
reproduced and disseminated. An employee
education effort, including in-person
trainings and webinars, is advisable for larger
companies that may have increased risks.
::::FOOTNOTES::::
FN1 271 F. Supp. 2d 737 (D. Md. 2003).
FN2 “Lowry’s Reports Wins $20 Million in Copyright
Violation Suit,” AllBusiness (Oct. 16, 2003), http://www.
allbusiness.com/marketing/direct-marketing-directmail/695692-1.html. The case subsequently settled
for an undisclosed amount. Dan Jamieson, “Costly
Legg Mason Copyright Case Reaches Settlement,”
Investment News, Aug. 22, 2005, at 18, available at
http://www.investmentnews.com/article/20050822/
SUB/508220718.
FN3 See, e.g., Argus Media Ltd. v. Tradition Fin.
Servs. Inc., No. 09 Civ. 7966(HB) (S.D.N.Y.) (asserting
claims of copyright infringement for alleged e-mail
forwards of plaintiff’s daily market newsletter over a
nearly two-year period).
FN4 17 U.S.C. §102(a).
FN5 17 U.S.C. §106(1) and (2). Copyright consists of a
bundle of rights, listed in §106 of the Copyright Act: the
exclusive rights to reproduce, distribute copies, create
derivative works, publicly display or publicly perform
the work. 17 U.S.C. §106.
FN6 17 U.S.C. §101.
FN7 See MAI Sys. Corp. v. Peak Computer Inc.,
991 F.2d 511, 517-18 (9th Cir. 1993) (explaining that
computers makes “’copies’” of files when they are
transferred because the copy in the transferee computer
is “’fixed’” in a manner that is “’sufficiently permanent
or stable to permit it to be perceived, reproduced, or
otherwise communicated for a period of more than
transitory duration’” (quoting 17 U.S.C. §101)).
FN8 See, e.g., Metro-Goldwyn-Mayer Studios Inc.
v. Grokster, Ltd., 545 U.S. 913 (2005); Perfect 10 Inc. v.
Amazon.com Inc., 508 F.3d 1146 (9th Cir. 2007); A&M
Records Inc. v. Napster Inc., 239 F.3d 1004 (9th Cir.
2001).
FN9 17 U.S.C. §106(5).
FN10 See Grokster, 545 U.S. at 930; Sony Corp. of Am.
v. Universal City Studios Inc., 464 U.S. 417, 437 (1984).
FN11 See Nimmer, “Nimmer on Copyright,” §12.04
[A] (2006).
FN12 17 U.S.C. §504(a). To be entitled to statutory
damages, the copyright owner must have registered
the allegedly infringed work within three months of
publication or prior to the infringement. 17 U.S.C. §412.
The court also may award costs and attorney’s fees at its
discretion. 17 U.S.C. §505.
FN13 17 U.S.C. §504(c)(1).
FN14 17 U.S.C. §504(c)(2).
FN15 It was undisputed that the daily and weekly
reports were materials protected by copyright.
FN16 271 F. Supp. 2d at 745.
FN17 Id. at 750-51.
FN18 Id. at 749. A court may determine that an
infringement constitutes a “fair use” after considering
and balancing four factors. See 17 U.S.C. §107; Am.
Geophysical Union v. Texaco Inc., 60 F.3d 913 (2d Cir.
1994) (holding that employee researchers’ unauthorized
photocopying of articles from scientific journals for
“archival” purposes was not fair use).
FN19 271 F. Supp. 2d at 745-46.
FN20 Id. at 746.
FN21 Id. (citation omitted).
FN22 See, e.g., Ticketmaster Corp. v. Tickets.com
Inc., No. CV 99-7654 HLH(BQRX), 2000 WL 525390, at
*2 (C.D. Cal. March 27, 2000) (“[H]yperlinking does not
itself involve a violation of the Copyright Act ... since no
copying is involved.”)
FN23 See Copyright Clearance Center, www.
copyright.com.
Anthony J. Dreyer and Lauren E. Aguiar are
partners with Skadden, Arps, Slate, Meagher & Flom.
Jordan Feirman and Anna Kolontyrsky, associates with
the firm, assisted in the preparation of this article.
Reprinted with permission from the June 3, 2011 edition of Law Technology News & THE NEW YORK LAW JOURNAL. © 2011 ALM
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