Last week Cox Communications lost its DMCA “safe harbor” defense against songwriters in BMG Rights Management’s lawsuit against Cox for failing to maintain a repeat infringer policy in Cox’s ISP business.  It has always seemed pretty obvious that an ISP running a “whack a mole” business requiring songwriters and artists to send repeated DMCA notices shouldn’t get the protection of the safe harbor if the law was working the way it should.  Finally a U.S. federal judge things so, too.

As we are often told by Big Tech, the DMCA safe harbors were a negotiated balance, a “grand bargain.”  What usually comes next is some spin that would have you believe that the “notice and takedown” operates as a kind of “tag you’re it” functionality that allows certain anointed ones to get away with not doing the actual stealing, but providing the means for the stealing to occur.  You know, because the Internet.

But now it looks like at least Cox Communications executives might have a real problem on their hands depending on how the facts turn out in the BMG case.  Why?

As Professor Tim Wu taught us before he started working for the New York Attorney General:

If the Internet were not a bookstore, or tubes, but rather a red-light district, YouTube would best be imagined as the hotel, and Napster, well, the pimp. YouTube, like a hotel, provides space for people to do things, legal or not. It’s not doing anything illegal itself, but its visitors may be. But Napster, everyone more or less now admits, was cast as the pimp: It was mainly a means of getting illegal stuff.

To extend Professor Wu’s pimp allegory, in Cox’s case it is the ISP who is providing the means of getting illegal stuff, and Cox wants to hide behind the “grand bargain” of the DMCA in order to look less like that metaphorical pimp.  In a way, it’s actually more complex than that.  According to Cox’s insurance carrier that is suing Cox to get out of any coverage, Cox’s executives intentionally failed to implement a repeat infringer policy.  The burden of implementing that policy is what ISPs take on in return for the benefit of the safe harbor.  The “grand bargain,” remember?

This notwithstanding the fact that BMG gave Cox many opportunities to get out of the middle.  Although Cox received far fewer DMCA notices than Google has, by failing to adopt a meaningful repeat infringer policy, Professor Wu might say that Cox has pimped its way to do the opposite of what the Congress intended with the DMCA’s repeat infringer requirement.  Or that seems to be clear to Cox’s insurance carrier who ought to know.

This is the real significance of the ruling and why notice and stay down is both vital to artists and entirely consistent with the goals of Congress when drafting the DMCA.

Continuing the criminal motif, Mr. Wu’s new boss, New York Attorney General Eric T. Schneiderman, had this to say in an op-ed that could easily have been written about Cox and certainly could at least be applied to ISPs:

Regulators should not be deterred and, as a practical matter, they can’t and won’t be — we are now living in an online world, one that offers great promise but is also becoming one of the primary crime scenes of the 21st century. Major service providers cannot be allowed to treat it as a digital Wild West. The only question is how long it will take for these cybercowboys to realize that working with the sheriffs is both good business and the right thing to do.

There is, however, a new face at the table now that Cox has both lost the protection of the safe harbor and may well be denied coverage by their insurance underwriter at Lloyds of London.  That face is Cox’s stockholders.

Lloyds is already trying to get out of paying Cox’s legal bill which appears to be north of $1 million already with trial starting next week.  Why is Lloyds denying coverage?  Because Lloyds quite correctly says it won’t insure Cox for its intentional refusal to comply with the DMCA for largely the same reason that the DMCA has a repeat infringer requirement in the first place.  If you try to do it right and screw up, you can get insurance or you might be entitled to the safe harbor (and you can probably more easily get insurance if you promise to comply with the safe harbor).  You cannot insure your way out of doing something that is purposely bad behavior.

The Hollywood Reporter tell us:

According to Lloyds’ complaint filed in New York Supreme Court, Cox has been told that its insurance policy doesn’t cover the BMG claim because it “arose out of intentional and not negligent acts” and “did not arise out of acts in rendering internet services but rather Cox’s business policy and practice of ignoring and failing to forward infringement notices and refusing to terminate or block infringing customers’ accounts.”

….It’s one thing for an ISP to put up a brave front — and maybe even win some goodwill among customers by fighting those like Rightscorp — but to do so with neither safe harbor nor possibly insurance raises the risk level quite substantially. Time will tell if this is a game-changer on the piracy front.

May be–but what this means is that the individual conduct of Cox Communications executives has now put the company’s shareholders on the hook for what could be massive copyright infringement damages for failing to implement a practice that’s not much more complicated than what you would expect from a university network.

Remember when Google paid a fine of $500,000,000 of the stockholders’ money to keep its senior executive team (many of whom are insider board members) from being criminally prosecuted for violating the Controlled Substances Act?  Google stockholders sued Google’s board members for breach of fiduciary duty and a bunch of other nasty things.

The argument goes like this:  We hired you executives to comply with the law.  If you choose to operate outside of the law that is your business, but you can’t use our money to pay for your bad behavior.  Cox Communications is the 17th largest private company in America, so we would have to assume that there are some institutional investors who hold shares of Cox and who are not too pleased about the pimping part.

The massive Internet Service Provider and cable operator Cox Communications currently being sued by BMG Rights Management and Round Hill has been dealt two body blows in a week.

First, Cox lost its DMCA “safe harbor” protection and now its insurance company (the venerable Lloyds of London) is refusing to cover any damages from claims for intentional copyright infringement.  Those two go together if you think like Lloyds of London because the safe harbor isn’t supposed to protect “intermediaries” from their intentionally bad behavior and you’re not going to get insured against it either.  Given how bad this is for similarly situated companies like Google (who also sells advertising), Cox should have no want of litigation financing, but it sends a chill up the spine, even so.  If Cox loses, that could push the company into bankruptcy where intentional infringement and crimes are not washed away.

Cox is getting sued by BMG Rights Management and Round Hill over the infringement of songs, a great example of publishers standing up for their songwriters and putting their money where it counts.  The case is going to trial next week in Virginia, and it’s starting to look like songwriters are finally going to get justice from ISPs who don’t understand the purpose of the DMCA safe harbors, eloquently summed up by Beggars Group Chairman Martin Mills at Canadian Music Week last year:

They were introduced, with some foresight, by the legislators in the USA framing the DMCA, to provide a notice and take down procedure for unlicensed content. But the legislation has been distorted into a protective wall behind which cyberlockers and torrent sites, and companies such as YouTube and Grooveshark, operate [or used to for Grooveshark].

The original intent was to protect reasonable people acting reasonably from falling foul of the law, to enable the digital economy to grow without “gotcha” law suits against ISPs who had no idea that their networks were being used for infringement. They were not intended to provide fortress walls behind which companies could build billion dollar businesses on content that had not been cleared. They were never intended to become a de facto “license”.

Mills captures the exact problem with the way that “intermediaries” like Cox profit themselves off the backs of creators, and especially songwriters.  Remember, Cox failed to join the Copyright Alert System, the user education and graduated response agreement signed by AT&T, Cablevision, Comcast, Time Warner and Verizon.  Also remember that songwriters and music publishers are also not covered by the CAS.

According to Ars Technica, the judge in the case apparently didn’t think much of Cox’s repeated failure over a couple years to properly adopt a repeat infringer policy.  We don’t have a full opinion yet from the judge in the case, but it’s starting to look like the whack a mole problem we have all experienced with Google, YouTube and others in the piracy chain may actually turn out to be evidence of a failed repeat infringer policy that will trump the safe harbor.  Once that opinion comes down, we will report back.

Now wouldn’t that be interesting.  That’s starting to sound like notice and stay down.

In other words, the availability of the safe harbor may turn on an objective truth.  If you get over x DMCA notices, you’re just not doing enough to be entitled to the special protection of the safe harbor law.

As Martin Mills also said at CMW:

Copyright is meant to allow you to control your own work. That is totally undermined when another law says that people in effect can ignore it with impunity. Would we consider a safe harbour law allowing small restaurants to ignore food hygiene laws ? Or a safe harbour for personal data being inappropriately used ? Of course not.

Cox is out of the safe harbor business (although somehow they’ll appeal that ruling–in a hurry because trial starts December 2 according to Ars).

On top of that, Digital Music News is reporting that Lloyds of London  (Cox’s insurance company) sued Cox in New York for a ruling that they don’t have to insure Cox against claims for intentional copyright infringement.

It’s the “intentional” part that will get Lloyds out of insuring Cox’s bad behavior.  Just like you can’t get insurance if you have a fatal wreck while driving drunk on alcohol, Cox can’t get insurance for destroying songwriters’ lives while drunk on power.  And they can’t get out of the liability by declaring bankruptcy for largely the same reasons.

There’s a very long way to go before this case is over, but Lloyds isn’t waiting around to find out.  They want out right now, which may–may–mean that they know something we don’t.

All in all, one of the best litigation weeks for songwriters in a very long time, and thanks to BMG and Round Hill (who was dismissed from the case on a technicality) for sticking it out.  But wait…there’s more.

Needless to say that Google is going to be very interested in this case.  Naturally, Google sent in its shills back in October to file friend of the court briefs intended to influence the judge–the Electronic Frontier Foundation and Public Knowledge.  According to Ars Technica, Judge O’Grady was having none of it, and refused to allow either the EFF or Public Knowledge to file their briefs (which is evidently at the discretion of the court).

“It adds absolutely nothing helpful at all,” O’Grady said of the EFF brief, according to Techdirt, based on a transcript of the October hearing. “It is a combination of describing the horrors that one endures from losing the Internet for any length of time. Frankly, it sounded like my son complaining when I took his electronics away when he watched YouTube videos instead of doing homework. And it’s completely hysterical.”

Yeah.

One other point to brighten up your Thanksgiving.  The same judge will be hearing the U.S. criminal case against Google Adsense customer Kim Dotcom/Megaupload once Dotcom is extradited from New Zealand.  Dotcom was no doubt thinking about making some of the same “head in the sand” defenses that Cox tried on Judge Liam O’Grady, so the betting is that Mr. KDC may be taking a long look at the hospitality of the federal government right about now.

That can have a tendency to focus the mind and loosen the tongue.

Please pass the turkey.