Photo: liability by Marco Verch under CC BY 2.0
Mike Chernoff, Associate Member, University of Cincinnati Law Review
I. Introduction
A copyright holder has the exclusive right to reproduce his copyrighted work, prepare derivative works, and distribute copies of the work.[1] If these rights are violated, the party responsible for the violation can be found to have infringed on the copyright.[2] This liability for infringement can extend to a third party vicariously in certain situations.[3] Recently, the District Court for the Northern District of Alabama ruled on the application of vicarious liability for copyright infringement to limited liability companies in Joe Hand Promotions, Inc. v. Alburl.[4] This case also raised the question of whether willful infringement damages may extend to another member of an LLC when vicarious liability has been found.[5]
II. Copyright Infringement
Copyright protection is available to “original works of authorship fixed in any tangible medium of expression.”[6] The exclusive rights that are afforded to a copyright holder include the right to reproduce the work, to prepare derivative works, and to distribute copies of the work.[7] In the case of a motion picture or other audiovisual works, the exclusive right to perform the copyrighted work publicly is also vested in the owner of the copyright.[8] Anyone who violates any of these exclusive rights of the copyright owner is liable for infringement of the copyright.[9] To make a prima facie case of copyright infringement, a plaintiff must show that (1) it owns a valid copyright in the work and (2) the defendants copied copyright-protected elements of the work.[10]
If the infringement is willful, courts can impose higher damage penalties by as much as $150,000.[11] This would be in addition to the ordinary damages that are available to the plaintiff in a copyright case, which can generally be either (1) actual damages plus additional profits of the infringer, or (2) between $750 and $30,000.[12] In the Eleventh Circuit, infringing conduct is willful when the infringer knows the conduct violates another’s exclusive rights, whether or not the violation is malicious.[13]
Parties can also be liable for the infringing conduct of others.[14] A party is vicariously liable for the infringing conduct of others when they have the ability to supervise the infringer and a financial interest in the infringing activity.[15] Vicarious liability may attach even when the defendant is unaware of the infringing conduct.[16]
III. Joe Hand Promotions, Inc. v. Alburl
The application of willful vicarious liability to a limited liability company (“LLC”) recently appeared in a suit in Alabama in Joe Hand Promotions, Inc. v. Alburl.[17] Scott Aburl and Angie Barraza were owners of Sidelines33, LLC, (“Sidelines”) and operated Sideline Pub & Grub with Barraza claiming a ten percent ownership stake.[18] Barraza’s responsibilities were limited to scheduling employees, daytime bartending, opening the store on occasions, counting the drawer, and ensuring the establishment was stocked.[19] Joe Hand Promotions (“JHP”), a distributor and licensor of sporting events, alleged that Sidelines exhibited the August 26, 2017 Floyd Mayweather, Jr. vs. Conor McGregor boxing match (“the program”) without paying the proper licensing fee.[20] JHP contracted to have exclusive commercial distribution rights of the program.[21] JHP alleged that Sidelines unlawfully obtained the Program through an unauthorized source and that Sidelines intentionally pirated the program in order to attract customers.[22]
Barraza did not dispute that the Program was broadcast at Sidelines, but denied that she assisted in showing the unlawful program.[23] She claimed to have no knowledge about the alleged infringement because Alburl, her now ex-husband, was solely responsible for receiving the transmission.[24] Barraza conceded that the Program was shown at Sidelines and that JHP had a valid copyright, thus JHP had a prima facie case of willful copyright infringement by Sidelines.[25]
The court had to decide two issues: was Barraza vicariously liable for the infringing broadcast and if so, was the vicarious infringement willful. Barraza argued that her “minor” ownership interest in Sidelines and Alburl control of the business precluded vicarious liability for the infringing display.[26] Barraza claimed no ability to supervise the direct infringer and that she was not a “dominant influence” in the business and should not be held liable for Alburl’s decisions.[27] The court granted the plaintiff’s motion for summary judgment on liability, holding that all owners were liable for the actions of the business, just as all owners shared in the gains and losses of the business.[28] The court determined an owner’s level of influence over the conduct of the business is not material to determine her liability for copyright infringement when the company is found to have infringed.[29]
Barraza argued that even if she was liable for the infringing conduct, she could not be assessed damages for willful infringement because she was not aware of the infringement.[30] The court ruled that the issue was whether the company’s conduct was willful, not Barraza’s.[31]
IV. Discussion
The extension of vicarious liability to the owners of an LLC provides a difficult question concerning the second element of vicarious liability: the right and ability to supervise the direct infringer. There are cases, including the Alburl case above, in which the LLC owner would not have had much, if any, supervising ability in displaying the unlicensed program. Vicarious liability should not extend to the non-supervisory owners because one of the elements of vicarious liability is not met. Extending vicarious liability to non-supervisory members of an LLC also takes away a key benefit of the LLC model: the limited liability. The limited liability structure of an LLC is designed to take away the risk of liability of individual LLC owners due to the acts of another person. Holding LLC members vicariously liable for another’s infringement activities destroys this limit on liability.
The extension of willful damages to a vicariously liable member also raises conflicts with the nature of LLCs. LLCs separate the members from the company as legal entities. Although a person involved in the company may have been willful in infringement, this does not indicate that an individual member may have been knowledgeable of this infringement. The imputation of knowledge should not cross the company-member boundary when this boundary was designed to protect the members from the company’s situations.
V. Conclusion
Extending vicarious liability to non-supervisory members of an LLC may greatly limit the benefits that LLC members are provided in this type of business organization. The protection provided by the LLC would be further weakened by allowing willful damages to extend to these vicarious infringers. Courts should consider these protections LLCs offer to their members when deciding these cases.
[1] 17 U.S.C.S. § 106 (Lexis 2020).
[2] 17 U.S.C.S. § 501(a) (Lexis 2020).
[3] Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 262 (1996).
[4] Joe Hand Promotions, Inc. v. Alburl, No. 5:18-cv-1935-LCB, 2020 U.S. Dist. LEXIS 29309 (N.D. Ala. Feb. 20, 2020).
[5] Id.
[6] 17 U.S.C.S. § 102 (Lexis 2020).
[7] 17 U.S.C.S. § 106 (Lexis 2020).
[8] 17 U.S.C.S. § 106(4) (Lexis 2020).
[9] 17 U.S.C.S. § 501(a) (Lexis 2020).
[10] Joe Hand Promotions, Inc. v. Alburl, No. 5:18-cv-1935-LCB, 2020 U.S. Dist. LEXIS 29309, at *6 (N.D. Ala. Feb. 20, 2020) (citing Saregama India, Ltd. v. Mosley, 635 F.3d 1284, 1290 (11th Cir. 2011)).
[11] 17 U.S.C.S. § 504(c)(2) (Lexis 2020).
[12] 17 U.S.C.S. §504 (Lexis 2020).
[13] Joe Hand Promotions, Inc. v. Alburl, No. 5:18-cv-1935-LCB, 2020 U.S. Dist. LEXIS 29309, at *7 (N.D. Ala. Feb. 20, 2020) (quoting Yellow Pages Photos, Inc. v. Ziplocal, LP, 795 F.3d 1255, 1271 (11th Cir. 2015)).
[14] Joe Hand Promotions, Inc. v. Alburl, No. 5:18-cv-1935-LCB, 2020 U.S. Dist. LEXIS 29309, at *10 (N.D. Ala. Feb. 20, 2020) (citing Southern Bell Tel. & Tel. Co. v. Associated Tel. Directory Publishers, 765 F.2d 801, 811 (11th Cir. 1985)).
[15] Id.
[16] Southern Bell Tel. & Tel. Co. v. Associated Tel. Directory Publishers, 765 F.2d 801, 809 (11th Cir. 1985) (citing Gershwin Publ’g Co. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971)).
[17] Joe Hand Promotions, Inc. v. Alburl, No. 5:18-cv-1935-LCB, 2020 U.S. Dist. LEXIS 29309 (N.D. Ala. Feb. 20, 2020).
[18] Id. at *1, *9.
[19] Id. at *9.
[20] Id. at *2.
[21] Id. at *1.
[22] Id. at *2-*3.
[23] Id. at *5.
[24] Id. at *5-*6.
[25] Id. at *6, *9.
[26] Id. at *11.
[27] Id.
[28] Id. at *15.
[29] Id. at *16.
[30] Id. at *17.
[31] Id. at *18.
