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GYP v. Zazzle: No Online "Safe Harbor" For Infringing Physical Goods

by Daniel B. Lifschitz

Greg Young Publishing, Inc. v. Zazzle, Inc., 2017 WL 2729584 (C.D. Cal. May 1, 2017)

Zazzle Logo

For many years, the “Safe Harbor” provision of the Digital Millennium Copyright Act (DMCA), 17 U.S.C. §512, has offered online service providers (OSPs) a certain level of expected protection from claims of copyright infringement committed by their users. So long as OSPs cooperated with copyright holders by removing or blocking access to allegedly infringing material upon receiving proper notice of the same under 17 U.S.C. §512(c), industry wisdom provided that an OSP could not be held liable for copyright infringement being principally committed by users of its website.

A complication to this wisdom, however, has arisen in the realm of OSPs that allow users to not only upload potentially infringing materials, but to then create physical merchandise (such as t-shirts, posters, coffee mugs, etc.) based upon the materials so uploaded. These websites, such as CafePress, Redbubble, and many others, may now find themselves increasingly in the crosshairs of copyright owners for their participation in the manufacture of physical (rather than digital) goods -- a harsh lesson recently learned by online storefront Zazzle.

Facts of the Case

Zazzle.com is a website that allows customers to upload images of artwork, slogans, or logos and to customize products bearing these images (such as t-shirts, mugs, posters, and blankets). Zazzle then physically produces and delivers the final products to customers who purchase them, paying royalties to the users who originally uploaded the images.

In June of 2016, Zazzle was sued by Greg Young Publishing (GYP), which alleged that Zazzle was not only publicly displaying 41 of GYP's copyrighted paintings on its website that it had never authorized for uploading, but also created consumer products bearing those images. Zazzle, in turn, asserted the safe harbor provision of the DMCA as its primary defense.

In order for Zazzle to be protected by the DMCA's safe harbor for storing images of GYP's copyrighted paintings at the direction of its users, 17 U.S.C. § 512(e) required that Zazzle (1) qualify as a service provider under the terms of the statute, (2) lack specific or "red flag" knowledge of the infringement committed by its users; and (3) derive no financial benefit directly attributable to any acts of infringement that it had the right and ability to control.

GYP asserted, in turn, asserted that (1) Zazzle is not a service provider under the DMCA; (2) Zazzle knew customers used its services to infringe copyrighted material; and (3) Zazzle received a financial benefit from the activity and had the right and ability to control it.

The Court's Decision

On summary judgment, the district court sided with Zazzle on only two out of the three required elements, finding that while Zazzle qualified as a service provider and lacked actionable knowledge of users' infringement, it did receive a financial benefit from an infringing activity it controlled – namely, the physical production of the goods bearing unauthorized copyrighted images. Therefore, the safe harbor was deemed inapplicable to Zazzle's printing and producing the items containing the plaintiff's copyrighted works.

1. A UGC Site Like Zazzle Is a "Service Provider"

To qualify for the DMCA's safe harbor protections, a website must be "a provider of online services or network access, or the operator[s] of facilities thereof," as defined by the statute at 17 U.S.C. § 512(k)(1)(B). Despite the definition of "service provider" being very broad -- the Court noted that, inter alia, Amazon, eBay, and PhotoBucket all qualify -- GYP argued that Zazzle went beyond merely displaying user-generated content by producing and selling the physical products bearing the images, and therefore no longer qualified as a service provider.

The Court disagreed, however, distinguishing Agence France Presse v. Morel, 934 F. Supp. 2d 547 (S.D.N.Y. 2013) (upon with GYP relied) as standing for the proposition that the safe harbor does not apply if the defendant itself uploaded the copyrighted material. (This, for example, is how the founder of MP3tunes lost the DMCA's safe harbor when he and his employees uploaded copyrighted music themselves).  The Court noted that on Zazzle.com, users were responsible for uploading the content, rendering Morel inapplicable.  GYP also cited to Gardner v. CafePress, Inc., 2014 WL 794216 (S.D. Cal. Feb. 26, 2014), in which a website that only directly sold products to online shoppers was found not to be an OSP.  The Court reasoned that Zazzle, in contrast, was effectively a hybrid service, and that the presence of its offline services (producing the products) did not obviate the online services it simultaneously provided or remove it from the definition of a "service provider."  Thus, the presence of offline services did not, by itself, disqualify Zazzle from the protections of the DMCA.

2. Zazzle Lacked Knowledge of Infringement Because GYP's Takedown Notice Did Not Comply with §512(c)(3)

In addition to determining that Zazzle qualified as a service provider under the DMCA. the Court also found that Zazzle lacked knowledge of its users' infringement.  As explained in IO Group v. Veoh Networks, Inc., 586 F. Supp. 2d 1132 (N.D. Cal. 2008), a service provider is presumed to lack sufficient knowledge of its users' infringement, and can therefore avoid liability, unless (1) the copyright owner issues a takedown notice that complies with the DMCA’s procedural requirements, or (2) a third-party issues a specific complaint of infringement. The Ninth Circuit has construed this knowledge clause very narrowly.

Here, even though Plaintiff complained to Zazzle, and provided a catalog of its images for reference, it never sent the takedown notice as specifically required by 17 U.S.C. §512(c)(3).  Therefore, because the plaintiff failed to adhere to the specific notification procedures of the DMCA, the Court found that Zazzle did not have constructive knowledge of the infringement.

3. Zazzle Had the Right to Control Infringing Activity - In Particular, The Production of Physical Goods

Despite prevailing on the first two elements of the DMCA's safe harbor, Zazzle's business model served to fatally undermine its ability to perfect the defense, as it was required to show that it did not receive a financial benefit attributable to infringing activity it can control. While Zazzle admitted that it receives a financial benefit from the activities on its website, it claimed it did not have the right and ability to control the resulting infringement.

In the case of most OSPs, this would have been the end of the inquiry. As the Court wrote, a website's ability to merely monitor and remove infringing material and block users does not equal the "right and ability to control infringing activity" under the DMCA.  UMG Recordings, Inc. v. Shelter Capital Partners LLC, 718 F.3d 1006, 1030 (9th Cir. 2013). Instead, courts have ruled that an OSP must exert a "substantial influence" over the activities in order to be barred from the protections of the safe harbor. Hendrickson v. eBay, Inc. 165 F. Supp. 2d 1082, 1094. 

Had Zazzle merely served as a passive marketplace in which users could list infringing products for sale, it likely would have comfortably fit within the category of protected services articulated by the UMG decision. However, the Court held that Zazzle did have the right and ability to control infringement on its site - not simply in terms of the images displayed, but the products it manufactured.  "Unlike eBay or Amazon, Zazzle’s role is not limited to facilitating the sale of products owned and marketed by third parties. Zazzle creates the products. If Zazzle lacks the right and ability to control the sale of products it creates, it is hard to imagine any defendant that would have such a right." Greg Young Publishing, Inc 2017 WL 2729584, p. 10 (emphasis added). Thus, Zazzle's protection for displaying copyrighted materials online did not extend to cover physically printing the material, which amounts to a substantial influence over the infringing activity and surpasses the limits of the DMCA's safe harbor.

Because Zazzle's manufacturing service granted the company substantial influence over the infringing conduct of its users, it exceeded the bounds of the DMCA safe harbor, opening the company up to liability for copyright infringement claims concerning the merchandise it produced bearing the plaintiff's images.

Takeaways

As the world of e-commerce continues to expand, it is no doubt tempting for many OSPs to serve as one-stop-shops for commercial transactions. While there is certainly money to be made in acting as both manufacturer and broker, cases such as Zazzle's demonstrate that consolidating services can be fraught with peril and must be carefully considered. Whenever possible, have an experienced intellectual property attorney vet your business plan to ensure that the protections offered by one arm of your service are not cannibalized by another arm. And for now, if you operate a website that produces and sells physical products bearing material uploaded by third parties, be aware that you may not be protected by the DMCA's safe harbor provision in the event of a copyright claim against one of your users.

Pierce Law Group LLP