On Tuesday, the 2nd Circuit Court of Appeals came out with its analysis of the long-running copyright dispute brought by Capitol, EMI and other record labels and music publishers against MP3Tunes and its founder Michael Robertson. The copyright owners prevailed at trial, but the content industry will take even greater satisfaction from Tuesday's opinion that narrows the circumstances whereby internet service providers can claim safe harbor from copyright liability.

Robertson once ran websites that allowed its users to upload music, listen to music and transfer — or "sideload" — music from third-party websites to storage lockers. This set off a lawsuit filed in 2007, delayed by among other things, Viacom's dispute with YouTube, MP3Tunes' 2012 bankruptcy and Robertson's challenge to the court's jurisdiction. In the run-up to the 2014 trial, U.S. District Judge William Pauley made many determinations on the issue of safe harbor, and after a jury came back with a $48 million verdict, the trial judge again intervened by trimming the punitive damages from $7.5 million to $750,000 and granting judgment on a matter of law on some of the claims.

Both sides appealed the outcome, and it's the music companies that enjoy the weight of 2nd Circuit judge Raymond Lohier's opinion (read here in full).

One of the big issues examined by Lohier is whether MP3Tunes reasonably implemented a repeat infringer policy.

The Digital Millennium Copyright Act shields a service provider from liability upon certain conditions including the adoption of such a policy. However, both sides debated whether certain MP3Tunes users truly qualified as "repeat infringers." The trial judge held that only those who are "blatant infringers" are subject to banning, but Lohier agrees with the copyright holders that this doesn't match with the text, structure or legislative history of the DMCA.

Tuesday's opinion comes to the view that a definition of "repeat infringer as limited to willful infringement is too narrow," and that a repeat infringer "does not need to know of the infringing nature of its online activities, or to upload rather than download content."

As such, Lanier shrugs off word that MP3Tunes terminated 153 users who shared passwords to address other evidence like what MP3Tunes failed to do upon takedown notices to users who were creating links and how executives were encouraged and personally transferred songs from "blatantly infringing" websites. He suggests MP3Tunes has an onus to do much more.

"Based on the available evidence, a reasonable jury could have concluded that it was reasonable for MP3tunes to track users who repeatedly created links to infringing content in the sideload.com index or who copied files from those links," writes Lanier. "After all, MP3tunes had already tracked and removed 153 users 'who allowed others to access their lockers and copy music files without authorization'; by comparison, requiring MP3tunes to extend that policy to users who sideloaded infringing content may not be an unreasonably burdensome request. Furthermore, doing so would not require MP3tunes to 'monitor' or 'affirmatively seek facts' about infringing activity in a manner inconsistent with § 512(m)(1) because it already had adequate information at its disposal in the form of takedown notices provided by EMI as to which links were allegedly infringing."

The music companies also scored big on a second issue.

The DMCA safe harbor provisions don't apply to service providers with either actual knowledge of infringing material or an awareness of "facts or circumstances from which infringing activity is apparent."

The latter is popularly known as "red flag knowledge," and content holders have for years been trying to get courts to liberally apply it to service providers who maybe should have known about infringements on their networks or are willfully blind. In the Viacom v. YouTube case, it was held there's no "amorphous obligation to take commercially reasonable steps in response to a generalized awareness of infringement," a defeat for the content industry, but Lanier now discusses application of the standards in a manner that's favorable to copyright holders.

He writes that the trial evidence "showed that MP3tunes and Robertson knew that major music labels generally had not even authorized their music to be distributed in the format most widely available on sideload.com, let alone authorized it to be shared on the internet. In particular, Robertson apparently knew that major record labels had not offered songs in MP3 format until 2007. ... With respect to MP3s sideloaded before 2007, therefore, the jury reasonably could have concluded that MP3tunes and Robertson were aware of 'facts and circumstances that make infringement obvious.'”

The 2nd Circuit thus reverses the trial judge's ruling vacating the jury verdict with respect to red flag knowledge.

The only area where the music companies lose is the question of statutory damages. The trial judge's decision to allow only one award per song — not one for the sound recording and another for the corresponding musical composition — is upheld. The 2nd Circuit also rejects Robertson's own challenges including liability for the infringement of cover art, MP3Tunes' liability for its executives' infringements, the district court's personal jurisdiction over him and the sufficiency of evidence supporting the jury's finding he was vicariously or contributorily liable for MP3Tunes infringements.

The case now goes back to Pauley to square all that's been decided, and in the tenth year of this case, figure out the appropriate damages figure, and if necessary, set up another trial.