As most people are aware, we live in a world where juries are returning increasingly large verdicts against companies who are alleged of wrongdoing. The size of these verdicts have become so large that stories about the verdicts appear as front page news in popular newspapers and on widely-read websites. Indeed, verdicts over $10 million have become so common over recent years that they now have a name: the “nuclear verdict.” Juries have returned nuclear verdicts against defendants in several different types of cases, such as trucking collisions, product liability cases, and professional liability and malpractice cases.
Even in our world of ever-increasing verdicts, the verdict rendered by a Virginia jury in the case of Sony Music Entertainment, et al. v. Cox Communications, et al. was, to say the least, eye-popping: over $1 billion – yes, billion – dollars. The case involved claims by several record companies that Cox Communications, one of the largest internet and cable service providers in the country, infringed on numerous copyrights by allowing its users to pirate the copyrighted works. Rather than sue the individuals who pirated the copyrighted works, the record companies sued Cox Communications, seeking to hold it responsible for its customers’ copyright infringement. Internet service providers like Cox can qualify for a “safe harbor” that protects it from such claims if they show that certain criteria are met, including the implementation of a reasonable anti-piracy program. However, Cox was not able to avail itself of the safe harbor. Finding the infringement willful, the jury awarded the plaintiff record companies nearly $100,000 for each work infringed, resulting in a total verdict of over $1 billion.
The Fourth Circuit Court of Appeals has now thrown the verdict out – but the ruling is only a partial win for Cox Communications. The jury found Cox liable under two theories of copyright infringement, one based on vicarious liability and one based on its own contributory infringement. The Fourth Circuit found that the amount of damages was not reasonable because the record companies did not show that Cox Communications profited from its subscribers’ actions downloading and distributing the copyrighted songs, which was necessary to find Cox vicariously liable.
However, the Fourth Circuit upheld the jury’s finding that Cox Communications was liable for contributory infringement. In reaching that result, the Fourth Circuit found that the evidence before the jury that supported its verdict on that issue included evidence that Cox knew of specific instances of repeat copyright infringement occurring on its network, that Cox traced those instances to specific users, and that Cox chose to continue providing monthly internet access to those users despite believing the infringement would continue because Cox wanted to avoid losing revenue. The Fourth Circuit also found that the jury reasonably could have interpreted internal Cox emails and chats as displaying contempt for laws intended to curb online infringement.
Because the Fourth Circuit upheld the jury’s finding of contributory infringement, the case will now return to the trial court for a new trial on damages. Accordingly, Cox still faces exposure to the possibility of a large verdict – even if it does not start with a “b” for billion.
There are many lessons that businesses in all industries can take from this case. For example, companies in highly regulated industries should be sure that they know if any of the laws and regulations that govern their industry offer a “safe harbor” for any conduct. If so, companies should, if possible, take whatever action is necessary to qualify for the safe harbor. Companies should also fully document these steps in case they ever need to prove in enforcement proceedings or in litigation that they qualify for the safe harbor. Companies should also consider when drafting and implementing internal policies how a jury might view those policies if they are ever produced in litigation. In the Cox case, the record companies argued that Cox adopted increasingly liberal policies and procedures for responding to reported infringement on its network, which the record companies characterized as ensuring that infringement would recur. And in a world where employees increasingly communicate with each other by a variety of electronic means, companies should train their employees about best practices for electronic communications – again with an eye towards the possibility that such communications could end up being shown in a courtroom one day.
The decision in the Fourth Circuit is Sony Music Entertainment, et al. v. Cox Communications, et al., No. 21-1168 (4th Cir. Feb. 20, 2024).
If you would like to discuss potential legal risks posed by your company’s operations and how to reduce those risks, please contact Danielle Brim (dbrim@setlifflaw.com) at (804) 377-1264 or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.
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