BMG had been using a third-party company called Rightscorp to monitor the Internet for filesharing activity and notify Internet providers when it found evidence of it. The expectation was that Cox would pass along Rightscorp's notices to consumers. BMG claimed that Cox was dragging its feet and using a variety of technical means to keep the notices from reaching its affected customers. The court ruled in favor of BMG's argument that Cox should be held liable because it not only knew that its users were illegally downloading copyrighted content, it also took actions that contributed to it.

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The finding that Cox is liable for its customers' piracy should absolutely worry other Internet providers, according to legal analysts at the consumer group Public Knowledge. The precedent raises fresh questions about what else Internet providers may be liable for beyond copyright, for example, and what the risk of litigation could mean for their ability to grow and provide reliable service to their subscribers. It may also lead to greater monitoring and control of individual customers.

Internet providers such as Comcast, AT&T and Verizon have not responded to requests for comment.

Cox said in a statement, "We are disappointed in the ruling and plan to appeal."

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Rightscorp told TorrentFreak.com that it welcomed the decision, saying in a statement:

For nearly five years, Rightscorp has warned U.S. Internet service providers (ISPs) that they risk incurring huge liabilities if they fail to implement and enforce policies under which they terminate the accounts of their subscribers who repeatedly infringe copyrights.

So far, Internet providers have dealt with the copyright issue by establishing policies that give users a number of strikes before their access is cut off. In addition, they pass along notices of suspected copyright infringement. This approach, along with other measures they can take, have largely insulated broadband companies from direct court action by making them eligible for what's known as legal "safe harbor."

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Because Cox didn't act aggressively enough to punish suspected infringers, it didn't qualify for safe harbor protections this time, according to Judge Liam O'Grady.

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But some legal analysts take issue with that finding.

"Even if Cox doesn’t qualify for the safe harbor, that doesn’t mean it’s actually liable for anything," said John Bergmayer, a senior staff attorney at the consumer group Public Knowledge (which is no friend to the broadband industry).

What's more, the particular way in which Rightscorp went about sending its notices may encourage further lawsuits, said Charles Duan, an intellectual property expert at Public Knowledge.

Rightscorp's practice was to send infringement notices to consumers (via Cox) that also happened to include an offer for the consumer to settle the issue right away with a payment of between $20 and $30, according to the text of O'Grady's decision.

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"What BMG found innovative, Cox found extortionate," O'Grady wrote. "In Cox's view, a settlement demand was premature at best because a notification alone cannot establish infringement." Cox wound up blocking Rightscorp's missives in such a way that Cox never actually received the 1.8 million copyright notices that Rightscorp sent on behalf of BMG.

BMG ultimately sued Cox, resulting in the current decision that finds Cox was liable for infringement simply because it did not process the letters as it should have.