The MPAA and file-hosting service Hotfile are gearing up for their trial in a U.S. court later this year. This week the movie studios told the court that Hotfile does not qualify for safe harbor protection as it knew about the "massive infringing use" of its service, citing last week's verdict against BitTorrent site isoHunt. The file-hosting site disputes the allegations and says that there's no evidence of any wrongdoing on their part.

As one of the largest file-sharing sites on the Internet, Hotfile has become a prime target for Hollywood.

Two years ago the inevitable finally happened when the MPAA filed a lawsuit against the file-hosting service. Since then there have been dozens of court filings and Hotfile even sued MPAA member Warner Bros. right back for allegedly abusing its copyright takedown tools.

The case is now heading towards trial later this year but the bickering in court hasn’t stopped.

The MPAA is using its recent win against BitTorrent site isoHunt to insist that Hotfile does not qualify for safe harbor protections. In the United States, safe harbor protects service providers from being held liable for copyright infringements carried out by their users, but this right doesn’t apply when certain conditions are met.

One of these conditions is “red flag” knowledge, a situation where it is obvious that the service provider is assisting people in pirating copyrighted material. In isoHunt’s case the court raised a “red flag” because the site owner pointed users to “obviously” copyright infringing material in the forums and according to the MPAA something similar happened in Hotfile’s case.

The MPAA points out that Hotfile received and in many cases responded to hundreds of user requests for technical support, where users were downloading files with names referencing popular movies and television programs.

Hotfile disputes this in a filing of its own by pointing out that it’s far from obvious that certain titles were infringing. They note that 50% of the files were uploaded exclusively for personal storage, meaning they would fall under fair use. Hotfile further points out that some file names were rather ambiguous and that many artists and studios uploaded content themselves.

“Here there is no evidence that Hotfile ‘actively encouraged infringement’ or ‘solicited and assisted’ with ‘particular copyrighted works’ that were ‘obviously’ ‘both copyrighted and not licensed’,” the file-hosting service replies.

The MPAA responded to some of Hotfile’s arguments, pointing again to the recent isoHunt ruling (Fung II). The movie studios did not respond to the fair use argument, or the suggestion that some files were uploaded by copyright holders themselves.

“As for ‘red flag’ knowledge, Fung II’s holding that it is objectively obvious that ‘current and well-known’ movies and television programs are not ‘licensed to random members of the public’ is in all respects identical to this case.”

“There as here, the names of the files made obvious that they represented copyrighted content, and Hotfile’s attempt to distract the Court by pointing to a small number of ‘closer calls’ is no defense with respect to the vast number of instances presenting no such ambiguity,” MPAA writes.

The MPAA further told the court that under the isoHunt decision it can be argued that Hotfile doesn’t qualify for safe harbor protection because it substantially influenced the (infringing) actions of users through the affiliate system.

“Here, Hotfile’s payments to users to upload content, including infringing content, are precisely the kind of ‘substantial influence’ that, under Fung II, would disqualify a defendant from the safe harbor when the ‘financial benefit’ prong is also met,” MPAA states.

Hotfile responded to this claim by pointing out that MPAA previously stated that it reserved this issue for trial, and the file-hosting service added that their top affiliates were legitimate software distributors.

“Hotfile’s affiliate program does not have a ‘substantial influence’ over infringement, because ‘popular’ does not equal infringing: the top paid affiliates were selling open source software and the Studios’ allegedly infringed content was not even among the top 100 most downloaded files on the site,” Hotfile writes.

The latest standoff in court once again shows that both sides have totally different views on virtually every aspect of the case.

The trial is currently scheduled to start in September but it’s still not clear what will be at stake. The MPAA wants Hotfile to be shut down as soon as possible and there are still several motions for default judgment pending.

The judge now has to decide how to go forward. Whatever the outcome, the case is expected to set an important precedent for the future of similar cloud hosting services that operate in the United States.