In a context that seems far removed from the typical copyright case, Cherry Auction operates flea markets throughout the central valley of California. As in many flea markets, at Cherry Auction you can find anything from hubcaps to Hispanic CDs. Some of the Hispanic CDs sold by vendors at this flea market were pirated versions of ones published by Fonavisa. Having not had much success in stopping the pirates directly, Fonovisa went up the food chain and sued Cherry Auction on theories of Vicarious Copyright Infringement and Contributory Copyright Infringement.
The court in this case relied on the reasoning in the Shapiro case to find Cherry Auction liable for Vicarious Infringement. Basically, the Shapiro case is a similar situation in which a department store operator was held liable for the infringement of vendors who rented stalls in the store and sold bootleg records.
The normal agency rule of respondeat superior would impose liability on an employer for copyright infringements committed by an employee. The court took that a step further with the proposition that likewise a vicarious infringer should be held liable for the copyright infringements of a direct infringer if their economic interests are intertwined. Shapiro supports the agency principles of respondeat superior, and discusses two divergent lines of cases, one involving landlord-tenant situations, and the other involving dance halls.
In the landlord-tenant situations, landlords were found not liable for vicarious infringement for the direct infringement of their tenants selling bootleg records when the landlords:
Conversely, in the dance hall cases, dance hall operators were found liable for vicarious infringement for the direct infringement of bands who played copyrighted songs in the venue without paying royalties when the operators:
So in Shapiro, whether the department store owner was liable or not depended on whether the court followed the landlord-tenant cases or the dance hall cases. Shapiro followed the dance hall cases, and consequently used the control-benefit test.
In Shapiro, the court found that the ability of the department store operator to police the vendors, combined with a contract with the vendors that included rules and regulation, was sufficient to satisfy the control requirement. In Fonovisa, the court likewise found Cherry Auctions ability to police its vendors under Cherry Auctions similarly broad contract with its vendors was sufficient to satisfy the control requirement.
In Shapiro, liability was imposed even though the department store operator was unaware of the infringement. The court stated that this was neither unduly harsh nor unfair because the operator had the power to cease the conduct of the vendor, and because the operator derived an obvious and direct financial benefit from the infringement. The Fonovisa court likewise did not feel it was being particularly punitive.
In Shapiro, the operator received a cut of the gross sales. The financial benefit to the operator was pretty direct; the more bootlegs the vendor sold, the more money flowed to the operator. In Fonovisa, the financial benefit to the operator is much more indirect, and include:
Cherry Auction argued that indirect these benefits cannot satisfy the financial benefit prong of vicarious liability test because under Shapiro, a commission, directly tied to the sale of particular infringing items, is required.
However the court harkened back to the dance hall cases and that the sale of pirated recordings at the Cherry Auction swap meet is a draw for customers, as was the performance of pirated music in the dance hall cases and their progeny. Consequently, the indirect benefits could be found to satisfy the financial benefit prong of the vicarious liability test.
Contributory Infringement originates in tort law and stems from the notion that one who directly contributes to anothers infringement should be held accountable. The oft-cited statement of infringement come from the Gershwin case: [O]ne who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a contributory infringer.
Cherry Auction argued that it wasnt doing anything actively to assist or contribute to the infringing activity. All it was doing was renting a stall to the vendors. Unfortunately for Cherry Auction, the Fonovisa court discerned a vast panoply of activity, including the provision of space, utilities, parking, advertising, plumbing, and customers, all to the end of providing the environment and market for counterfeit recording sales to thrive.
Consequently, providing the site and facilities for known infringing activity may be sufficient to establish contributory liability.