Vicarious and contributory liability are terms well-known to every tort lawyer and law student.  They should also be familiar to business owners and managers.

The legal theories of vicarious and contributory liability are well-established in copyright law and are employed to impose liability for another’s direct infringement where a third party, such as a distributor or landlord, contributed to the infringement by encouraging or providing the means to infringe, or where the party had the means to stop the infringement and benefited financially from it.

For example, the flea market landlord who knows or has reason to know its tenant/vendor is selling, without authority, copyright protected content such as books, software, and music is contributorily liable for the vendor’s infringement.

Vicarious liability exists when an LLC attends a trade show and its owners or senior managers demonstrate software that includes with their knowledge and without permission software copyrighted by another party. The LLC is liable as the direct infringer, and the owners are vicariously liable because they controlled the activity and make money from sales.

Sometimes holding the direct infringers liable can be a tough row to hoe, especially when there are thousands spread out across the country who download unauthorized content to a website run by an internet service provider. And, sometimes a direct infringer, such as a newly formed LLC,  has no assets or can easily restart its infringing activities in a new LLC, so vicarious liability is a way to stop its owners and senior managers by naming them as defendants in a copyright suit along with their entity.

The rewards of suing for secondary liability can be enormous for the copyright holders and financially devastating for the party that contributes to the infringement, as Cox Communications recently learned.

Cox was sued for vicarious and contributory infringement of copyrighted music downloaded by subscribers to its internet services. A jury sitting in the Eastern District of Virginia awarded Sony and dozens of other music industry plaintiffs $1 billion on account of Cox’s secondary liability. Cox appealed.

Cox, a cable TV provider to 6 million homes and seller of internet services, allowed internet subscribers to download infringing songs to its internet service, and its service then distributed the songs to other subscribers. Cox was sued as both a vicarious and a contributory infringer and statutory damages were awarded at approximately $96,000 per infringing song.

On appeal, the U.S. Court of Appeals for the 4th Circuit affirmed the jury’s finding of contributory infringement and reversed the vicarious liability verdict, finding that Cox did not profit directly from the infringing act. As to contributory infringement, the court held that plaintiffs had proven Cox’s knowledge of the infringement.

Knowledge, an essential element, may be shown by “willful blindness” or knowledge that infringement was substantially certain to result from the sale of the product. For example, if a flea market landlord has no reason to believe infringing material is being sold from its real estate it hasn’t formed the required knowledge.

Nor is general knowledge enough. This is especially so where the allegedly infringing product can be used for both lawful and unlawful purposes, such as an old-time video cassette recorder.

However, providing a product with substantial non-infringe uses has been held a material contribution to the infringement where the party had knowledge that its product would be used to infringe.

As the court pointed out, lending a friend a hammer is an innocent act; lending a friend a hammer knowing they will use it to break into an ATM is abetting the crime. Once aware that the service or product is being used to facilitate infringement, the supplier has a duty to act.

Vicarious and contributing infringement, both forms of secondary liability for someone else’s direct infringement, are critically important tools for the practitioner; anyone helping others to reproduce or distribute copyrighted materials also needs to know these rules for the sake of their financial survival.

The Copyright Act does not mention secondary liability for contributory or vicarious liability, but all federal district and appellate courts, as well as the U.S. Supreme Court, have imposed liability on copyright defendants under theories of secondary liability.

No matter the size of the business, whether it is a two-person LLC developing and selling software or a Fortune 500 corporation providing communication services, it is critical for all supervisory employees to learn about copyright infringement and theories of secondary liability.

They should actively investigate the content and uses of their products where reason and facts would reasonably impose a belief that the product may be used for unlawful purposes; they must not turn a blind eye to the circumstances. The risks to a business and sometimes its management or owners can be existential.

James B. Astrachan is a partner at Goodell, DeVries, Leech & Dann, LLP and taught trademark and unfair competition Law and copyright law at area law schools for 23 years.

This article was originally published in The Daily Record.