The Court of Appeals for the Fourth Circuit has thrown out the $25 million piracy liability verdict against Internet provider Cox because of an erroneous jury instruction. This means that there will be a new trial. At the same time, however, the Court also concluded that Cox lost its safe harbor protection, as it failed to implement a meaningful repeat infringer policy, which should have the ISP worried.

December 2015, a Virginia federal jury ruled that Internet provider Cox Communications was responsible for the copyright infringements of its subscribers.

The ISP was found guilty of willful contributory copyright infringement and ordered to pay music publisher BMG Rights Management $25 million in damages.

Cox swiftly filed its appeal arguing that the District Court made several errors in the jury instructions. In addition, it asked for a clarification of the term “repeat infringer” in its favor.

Today the Court of Appeals for the Fourth Circuit ruled on the matter in a mixed decision which could have great consequences.

The Court ruled that the District Court indeed made a mistake in its jury instruction. Specifically, it said that the ISP could be found liable for contributory infringement if it “knew or should have known of such infringing activity.” The Court of Appeals agrees that based on the law, the “should have known” standard is too low.

When this is the case the appeals court can call for a new trial, and that is exactly what it did. This means that the $25 million verdict is off the table, and the same is true for the millions in attorney’s fees and costs BMG was previously granted.

It’s not all good news for Cox though. The most crucial matter in the case is whether Cox has safe harbor protection under the DMCA. In order to qualify, the company is required to terminate accounts of repeat infringers, when appropriate.

Cox argued that subscribers can only be seen as repeat infringers if they’ve been previously adjudicated in court, not if they merely received several takedown notices. This was still an open question, as the term repeat infringer is not clearly defined in the DMCA.

Today, however, the appeals court is pretty clear on the matter. According to Judge Motz’s opinion, shared by HWR, the language of the DMCA suggests that the term “infringer” is not limited to adjudicated infringers.

This is supported by legislative history as the House Commerce and Senate Judiciary Committee Reports both explained that “those who repeatedly or flagrantly abuse their access to the Internet through disrespect for the intellectual property rights of others should know that there is a realistic threat of losing that access.”

“The passage does not suggest that they should risk losing Internet access only once they have been sued in court and found liable for multiple instances of infringement,” Judge Motz writes in her opinion.

Losing Internet access would hardly be a “realistic threat” that would stop someone from pirating if he or she has already been punished several times in court, the argument goes.

This leads the Court of Appeals to conclude that the District Court was right: Cox is not entitled to safe harbor protection because it failed to implement a meaningful repeat infringer policy.

“Cox failed to qualify for the DMCA safe harbor because it failed to implement its policy in any consistent or meaningful way — leaving it essentially with no policy,” Judge Motz writes.

This means that, while Cox gets a new trial, it is still at a severe disadvantage. Not only that, the Court of Appeals interpretation of the repeat infringer question is also a clear signal to other Internet service providers to disconnect pirates based on repeated copyright holder complaints.

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Judge Motz’s full opinion is available here (pdf).