A federal judge in Miami has dismissed direct copyright infringement charges against Hotfile, a popular online "locker" service that the major Hollywood studios allege is responsible for massive copyright infringement. But he allowed the case to proceed on charges that Hotfile has induced and profited from the infringing activities of its users. The 9-page opinion, first reported by the Hollywood, Esq. blog, provides early clues about how Judge Adalberto Jordan views the defendants, Hotfile and its alleged owner Anton Titov.

The case, which began in February, represents the latest front in the never-ending arms race between Hollywood studios and users seeking free copies of their movies. Hotfile is a "cyberlocker" site. Users upload files they wish to share with others and are rewarded financially if these files prove popular. The studios allege that the overwhelming majority of the files users upload to Hotfile are copyrighted content being distributed without the consent of copyright holders' like themselves.

Hotfile, for its part, argues that it is providing an ordinary Web-hosting service and is not responsible for content its users choose to upload. Hotfile lacks any interface for browsing or searching the files on the site, allowing it to plausibly deny any knowledge of their contents. The studios allege that Hotfile "relies on third-party pirate link sites to host, organize and promote URL links to Hotfile-hosted infringing content."

Hotfile faces two distinct charges: direct and secondary liability. The studios argued that Hotfile is directly liable for the infringing actions of its users because it owns and operates the servers through which the infringing copies were made. It also argues that they are secondarily liable under the inducement theory articulated by the Supreme Court in the 2005 Grokster decision.

On Friday, Judge Jordan threw out the direct infringement charge. The courts have long held that a finding of direct infringement requires a "volitional act" by the infringer. Jordan ruled that it was Hotfile's users—not Hotfile itself—that decided which files to submit. And therefore, Hotfile cannot be guilty of direct copyright infringement.

On the other hand, the judge refused to throw out the secondary liability charge. The case will now proceed to determine whether Hotfile is, in fact, guilty of inducing its users to infringe copyright.

On this count, Hotfile's case looks even weaker than the arguments of MP3tunes, which we covered last week. Whereas MP3tunes only allows users to download files they uploaded themselves, Hotfile allows files to be distributed to an unlimited number of users. The studios also charge that Hotfile users get checks for uploading popular files even after those files have gotten takedown notices. While neither of these factors is legally decisive by itself, the combination of these and other evidence may persuade a judge that Hotfile fails Grokster's inducement test.

Update: Just after we posted this story, we received the following comment from Karen Thorland, the Vice President and Senior Content Protection Counsel at the MPAA:

While the Court dismissed the direct infringement claim based on its view of the law, it made clear that the secondary infringement claims will go forward against all defendants and we are confident that we will be able to establish Hotfile's culpability through those claims. The fact remains that Hotfile and its operators facilitate the theft of copyrighted motion picture and television properties on a staggering scale and profit handsomely from encouraging and providing the means for massive copyright infringement.

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