Storage With Access: UMG v. Shelter Capital and the Reach of the § 512(c) Safe Harbor

The Ninth Circuit held that Veoh's automated transcoding and playback functions fell within 'storage at the direction of a user,' and that general knowledge of infringement on a video platform does not defeat the DMCA safe harbor.

In UMG Recordings, Inc. v. Shelter Capital Partners LLC, No. 09-55902 (9th Cir. Mar. 14, 2013), the U.S. Court of Appeals for the Ninth Circuit affirmed that the video-sharing service Veoh was protected by the DMCA’s storage safe harbor, 17 U.S.C. § 512(c). The decision — issued in an opinion by Judge Raymond C. Fisher that superseded an earlier December 20, 2011 ruling — is the West Coast counterpart to the Second Circuit’s Viacom v. YouTube, and the two opinions together built the modern architecture of platform safe-harbor law. UMG, one of the world’s largest record companies, had sued Veoh and its investors over user-uploaded music videos, arguing that the safe harbor simply did not apply to a service that did far more than passively warehouse files.

At a glance

Court and date: Ninth Circuit Court of Appeals, opinion filed March 14, 2013, No. 09-55902 (superseding the prior Dec. 20, 2011 opinion).
Disposition: District court’s grant of summary judgment to Veoh largely affirmed; the safe harbor applied.
“By reason of storage” holding: Section 512(c) covers more than literal file storage. Veoh’s automated functions — transcoding uploads into Flash, allowing streaming playback, and enabling downloads — are access-facilitating processes that fall within “storage at the direction of a user.”
Knowledge holding: General knowledge that a service hosts infringing material, or that a category of content (like music videos) is prone to infringement, does not constitute the specific knowledge or red-flag awareness needed to defeat the harbor.
Control holding: The “right and ability to control” under § 512(c)(1)(B) requires “something more” than the general ability to locate and remove infringing material — consistent with Viacom.

The “storage” question: hosting that nobody can see is useless

UMG’s most ambitious argument attacked the threshold scope of § 512(c), which limits liability for infringement “by reason of the storage at the direction of a user.” UMG contended that Veoh forfeited the harbor by stepping outside mere “storage”: Veoh automatically converted user uploads into Flash format, broke them into smaller files, created previews, and streamed them to viewers on demand. These functions, UMG argued, were active transformations of content, not passive storage.

The Ninth Circuit rejected the premise. Storage divorced from access, the court observed, would be “of little use” — the entire point of a web host is to make stored material available to other internet users. Congress, it reasoned, plainly understood § 512(c) to encompass the access-enabling functions that storage exists to serve. Veoh’s automated processes did not “go beyond” storage; they were the technical means by which user-directed storage becomes user-facing video. Because each step was triggered automatically by the act of a user uploading a file, the infringement, if any, occurred “by reason of the storage at the direction of a user.” This reading gave § 512(c) the breadth necessary to cover modern hosting platforms rather than a vanishing category of pure digital lockers.

Knowledge: general awareness is not enough

UMG’s second theory was that Veoh had disqualifying knowledge. Like Viacom, UMG pointed to evidence that Veoh’s leadership understood music videos were among the most-trafficked content on the service and that much of it was likely unlicensed. The court held this insufficient. Echoing principles the Second Circuit would crystallize in Viacom, the Ninth Circuit ruled that “merely hosting a category of copyrightable content, such as music videos, with the general knowledge that one’s services could be used to share infringing material, is insufficient” to impose a duty to act.

To lose the harbor, a provider must have actual knowledge of specific infringing material, or be aware of facts making specific infringement objectively apparent — and then fail to act expeditiously. The court emphasized § 512(m)‘s rule that the safe harbor does not condition protection on a provider’s affirmative monitoring of its service. The burden of identifying infringement, through the notice-and-takedown machinery, rests with the rights holder. Tellingly, UMG had never sent Veoh a DMCA takedown notice for the works at issue, instead proceeding straight to litigation — a posture the court found difficult to square with a theory that Veoh knew exactly what to remove.

Control: “something more” than the power to delete

UMG’s third theory invoked § 512(c)(1)(B), which removes the harbor where a provider receives a direct financial benefit from infringing activity it has “the right and ability to control.” UMG argued that Veoh’s ability to remove files, control its system, and apply filtering technology satisfied this standard.

The Ninth Circuit disagreed, adopting the same “something more” formulation the Second Circuit articulated in Viacom. If the mere ability to locate and remove infringing material were enough, the court explained, no § 512(c) provider could ever qualify — because that capacity is a defining feature of every covered service. The “right and ability to control” therefore requires substantial influence over user activity, beyond the technical capacity to take content down. Veoh’s general administrative powers did not meet that bar, and UMG had not identified the kind of high-control conduct — such as actively inducing or curating infringement — that might. The court also affirmed that Veoh’s adoption of filtering tools and prompt responses to takedown notices reinforced, rather than undermined, its good-faith compliance.

Open questions

What conduct supplies the “something more”? Both Veoh and Viacom defined control by what it is not. The affirmative conduct that crosses the line — aggressive curation, inducement, editorial selection — remains underspecified.
How automated can a function be and still count as “storage”? The court blessed transcoding and streaming as access-facilitating. Whether algorithmic recommendation, monetization tooling, or generative transformation also qualify is unresolved.
Does pre-litigation notice matter? UMG’s failure to send takedown notices loomed large. Whether a rights holder’s choice to litigate rather than notify should bear on the knowledge analysis is a recurring strategic question.

Implications

For platforms: The functions that make user content viewable — format conversion, streaming, previews — are protected “storage,” not disqualifying conduct. Building a usable service does not forfeit the harbor.
For rights holders: General knowledge arguments fail. To defeat § 512(c), a claimant generally must show specific knowledge or red flags and, in most circumstances, should use the notice-and-takedown process.
For investors and corporate defendants: UMG also sued Veoh’s venture investors. The decision’s affirmance of the harbor (and rejection of secondary-liability exposure on this record) is a reminder that funding a compliant platform is not, by itself, actionable.
For doctrine: Veoh and Viacom are deliberately convergent. Counsel can cite them together for the specificity-of-knowledge rule and the “something more” control standard across circuits.

Frequently asked questions

Did Veoh win? Yes, on the safe-harbor question — the Ninth Circuit affirmed that § 512(c) protected Veoh. The victory was, however, pyrrhic: Veoh had already been driven into bankruptcy by the cost of the litigation.

Why did the court treat streaming and transcoding as “storage”? Because storage that no one can access is pointless. The court read § 512(c)‘s phrase “by reason of the storage at the direction of a user” to include the automated, user-triggered functions that make stored content viewable.

Does a copyright owner have to send a takedown notice before suing? The statute does not strictly require it, but the court treated UMG’s failure to send notices as significant to the knowledge analysis. Specific notices are the ordinary way to put a provider on the kind of specific notice that triggers a duty to act.