2d Cir. affirms S.D.N.Y. decision in Barnes & Noble copyright case, cloud-based services questions

In the summer of 2012, tech media outlets were reporting on a new cloud-based service being offered by American retail bookseller Barnes & Noble (NYSE:BKS) called Nook for Web. The service is available as an app running on computing devices, including B&N’s Nook portable electronic reading device, and provides users access to millions of titles available online. Users browse listings and can choose to download a free sample of an ebook or purchase ebooks online for instant reading on a device. Barnes & Noble also makes ebooks available through its flagship website, Barnesandnoble.com.

The rise of digital computing services and their ability to quickly disseminate multimedia content across the globe in a matter of moments has posed some interesting issues in the realm of copyright. Indeed, the U.S. Supreme Court’s standard handed down in the 1984 case Sony Corporation of America v. Universal City Studios, Inc., in which the court decided that Sony’s Betamax video recording standard was not illegal because it had substantial non-infringing uses other than recording Universal’s copyright-protected content, seems to have given way in recent years under the weight of legal challenges by recording industry groups against file-sharing services.

In early October, the U.S. Court of Appeals for the Second Circuit (2d Cir.) handed down a decision, which almost answered important questions about how cloud-based access to content can affect copyright holders. At issue in the case, Cheryl Smith v. Barnesandnoble.com, LLC, was Barnes & Noble’s activities in providing samples of a text through the cloud to consumers after a licensing agreement on that piece of text was terminated.

The judicial panel at the 2d Cir. took up an appeal filed by Cheryl Smith, whose late husband Louis K. Smith authored and copyright a book titled The Hardscrabble Zone, which he published through an online ebook distributor in 2009. The distributor, Smashwords, Inc., offered a licensing agreement to Smith which retained Smashwords’ right to distribute samples of the work to promote the author or the distribution platform. End-users acquiring the free sample could further duplicate, share and reproduce the sample for non-commercial purposes and only while the price of the sample is set at zero.

In October 2011, Smith terminated his licensing agreement with Smashwords for distributing The Hardscrabble Zone after no copies of his title were sold. While the licensing agreement was in place, however, Smashwords had provided a free sample of the ebook to Barnes & Noble, which made free samples of the work available online while also listing the book for sale. The Hardscrabble Zone wasn’t delisted from bn.com until April 20, 2012, about six months after the licensing agreement was ended.

The plaintiff in the case argued that Barnes & Noble had committed direct and contributory copyright infringement by providing consumer access to samples of The Hardscrabble Zone after the Smashwords licensing agreement was terminated. In particular, one customer was given access to the sample on multiple occasions through a “digital locker” system employed by Barnes & Noble’s cloud services. Although the book sample was obtained by the customer and stored in the digital locker during the period in which the licensing agreement was in place, the plaintiff argued that two instances of access to the sample occurred after the agreement was terminated amounted to copyright infringement.

Last November, the case against Barnes & Noble was thrown out by a federal judge in the U.S. District Court for the Southern District of New York (S.D.N.Y.). U.S. District Judge Andrew L. Carter Jr. ruled that Barnes & Noble couldn’t be found liable of copyright infringement even if the customer who accessed the content could be found to have directly infringed the author’s copyright. Law360’s coverage of the case, linked above, quotes Judge Carter’s opinion as reading: “The digital locker system ‘is widely used for legitimate, unobjectionable purposes,’” sounding an echo back to SCOTUS’s Sony decision.

The appeal to 2d Cir. did not prove to be fruitful for the plaintiff. The 2d Cir.’s panel opinion, written by U.S. Circuit Judge Dennis Jacobs, notes that Smashwords’ distribution agreement treats digital and paper samples the same. “Since a customer who has a paper sample may obviously keep it, reread it and make additional paper copies of it for noncommercial use at will, it follows that the agreement does not provide or imply that a person who obtained a digital sample would lose the license for free access upon termination of the distribution agreement,” the opinion reads. Further, Barnes & Noble doesn’t break the terms of the distribution agreement by providing access to the sample through the digital locker system because, once the customer has stored the content in the locker, the bookseller is providing access, not distribution.

Although 2d Cir. affirmed S.D.N.Y.’s decision to accept a motion for summary judgment against the plaintiff, 2d Cir. stayed away from deciding the case in the context of cloud storage by determining that the relevant activity was authorized by the distribution agreement. The panel decision in S.D.N.Y. cited previous cases when granting summary judgment to defendants, including the Supreme Court’s decision in the 1984 Sony case as well as Cartoon Network, LP v. CSC Holdings, Inc., which related to issues of providing means for storing content for later access. Cartoon Network v. CSC Holdings was decided March 2007 in S.D.N.Y. and originally found in favor of the plaintiff, which alleged that a network-based digital video recording (DVR) technology marketed by Cablevision amounted to copyright infringement because end-users could create unauthorized copies of copyright-protected broadcasts which were stored on a network, not a consumer’s hard drive. The case was appealed to 2d Cir. which reversed, vacated and remanded the original S.D.N.Y. decision. In its written opinion, 2d Cir. concluded that Cablevision’s network-based DVR system did not directly infringe plaintiff’s copyrights under the Copyright Act. Although S.D.N.Y. found that the cloud-based method of storing content for later playback amounted to actively engaging in a public performance of a copyright-protected work, 2d Cir. found that copies are authored and played back due to an act by the customer, not an act of Cablevision’s, so Cablevision wasn’t directly liable for any infringement. 2d Cir.’s decision in Smith v. Barnesandnoble.com to step away from the questions of whether a cloud-based service constituted fair use which barred any charges of copyright infringement, it would seem that the application of fair use doctrine to cloud-based services remains up in the air from a judicial standpoint.