In this case, Costar Group Inc. v. Loopnet, Inc., Costar, the owner of numerous copyrighted photographs, sued Loopnet, an internet company that listed commercial real estate on its website which included some of CoStar’s copyrighted photographs, for direct and contributory copyright infringement. As in the YouTube case, Loopnet sought refuge in the protection of the Digital Millennium Copyright Act (“DMCA”). One of the critical issues for YouTube to successfully invoke the protections of the DMCA will be whether or not it receives a direct financial benefit from the infringing material on its website. The Costar case sheds light on this element of the DMCA.
In the Costar case, the court ruled that Loopnet did not receive a financial benefit directly attributable to the infringing photographs. In reaching that conclusion, the Costar court relied on the legislative history of the DMCA and related case law. The court found significant that Loopnet did not charge a fee for posting any real estate listing, whether it was with a photograph (thus potentially infringing) or without a photograph (non-infringing). It rejected Costar’s claim that Loopnet financially benefited by having infringing works on its website which enhanced the attractiveness of its website to potential customers. The Costar court found that this type of financial benefit was an indirect benefit, not the type of direct benefit required by section 512(c)(1)(B) of the DMCA. However, there is another line of cases (one of which is included in my Annotated Bibliography – Perfect 10 v. Cybernet) which concludes that there is a direct financial benefit where the infringing material acts as a draw that attracts subscribers to the website. That line of cases could be problematic for YouTube. In the case of YouTube, the manner in which it generates income will be critical to the application of the financial benefit test. Specifically, YouTube’s advertising revenue will be considered in light of the Costar financial benefit analysis as well as the alternative analysis that focuses on the potential draw of the infringing material.