Derivative and Secondary Liability for Copyright Infringement: Knowledge vs. Control

One may be liable for copyright infringement by another under theories of contributory infringement or vicarious infringement. Where there are multiple infringers of a copyright, all infringers are jointly and severally liable for the plaintiff’s actual or statutory damages, but each defendant is severally liable for the defendant’s own unlawful profits. Frank Music Corp. v. Metro-Goldwin-Mayer, Inc., 772 F.2d 505, 519 (9th Cir. 1985); cf. Desire, LLC v. Manna Textiles, Inc., 986 F.3d 1253 (9th Cir. 2021) (“where an upstream defendant causes, whether directly or indirectly, a downstream defendant’s infringement, the upstream defendant is a joint tortfeasor in, and therefore jointly and severally liable for, the plaintiff’s harm caused by the downstream defendant’s conduct,” although a copyright owner would only be entitled to one award of statutory damages per work infringed).

“One who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a ‘contributory’ infringer.” A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir. 2001) (emphasis added). In contrast, vicarious liability arises when “the defendant profits from the infringement and has a right and ability to supervise the direct infringer, even if the defendant initially lacks knowledge of the infringement.” Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, n. 9 at 930 (2005). The supervise, or control, element implies that the vicarious infringer declines to exercise its supervisory/control to stop potential infringement. Grokster Ltd., 545 U.S. at 930; A&M Records, Inc., 239 F.3d at 1023 (“To escape imposition of vicarious liability, the reserved right to police must be exercised to its fullest extent.”).

A recent case from the Ninth Circuit serves as a reminder of the scope of vicarious liability and the obligation to exercise the ability to supervise. Rearden LLC v. Walt Disney Pictures, Case No. 24-3970 (Sept. 11, 2025) (reversing Rule 50 Judgment as a Matter of Law (“JMOL”) and reinstating a jury’s verdict against Walt Disney Pictures for vicarious copyright infringement).

Vicarious copyright infringement “extends beyond an employer/employee relationship to cases in which a defendant has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.” A&M Records, Inc., 239 F.3d at 1022. Public policy supports imposing vicarious liability in the proper circumstances because the vicarious infringer, “unlike the copyright owner, either has an opportunity to guard against the infringement (by diligent inquiry), or at least the ability to guard against the infringement (by an indemnity agreement … and/or by insurance),” Shapiro, Bernstein & Co. v. H.L. Green, Co., 316 F.2d 304, 308 (2nd Cir. 1963) (citation omitted).

In A&M Records, Inc, a preliminary injunction was issued based in part on a claim of vicarious infringement involving Napster’s service allowing its users (alleged direct infringers) to exchange MP3 files. The Ninth Circuit said: “Napster may be vicariously liable when it fails to affirmatively use its ability to patrol its system and preclude access to potentially infringing files listed in its search index. Napster has both the ability to use its search function to identify infringing musical recordings and the right to bar participation of users who engage in the transmission of infringing files.”

In Rearden, Rearden claimed that Disney was vicariously liable for the infringing conduct of one of its visual effects vendors making unauthorized copies of Reardens’ copyrighted facial motion capture software during the production of Disney’s 2017 film “Beauty and the Beast.” After a jury trial concluded in the Northern District of California, the jury returned a verdict in favor of Rearden, awarding $250,638 in actual damages and $345,098 for Disney’s profits attributable to the alleged infringement. The district court disagreed with the jury’s determination of liability, granting a JMOL in favor of Disney stating that “Rearden failed to introduce legally and sufficient evidence at trial that Disney had the practical ability to identify, and therefore supervise or control whether its vendors … were infringing copyright.” (emphasis added). Rearden appealed, claiming that the evidence admitted at trial provides the jury with a legally sufficient basis to find Disney liable for vicarious infringement and therefore the district court abused its discretion in granting the JMOL. The Ninth Circuit agreed with Rearden and reversed.

The Ninth Circuit opined that Rearden had presented sufficient evidence upon which the jury properly could rely that Disney could have supervised its vendor. The evidence admitted at trial supporting the control element included: (a) Disney’s contract with its vendor “clearly gave it all necessary legal rights to supervise and control [it]’s use of” the technology; (b) “Disney did in fact guard against the risk if infringement by including an indemnification clause in its contract with” its vendor; and (c) Disney also had the right to require the vendor to turn over all work product on request and the legal right to terminate the contract for copyright infringement.

Although the vendor represented to Disney it had all the necessary rights to the technology, Disney could not rely upon that representation to avoid vicarious liability. The Ninth Circuit opined that the jury could have reasonably concluded Disney had the practical ability to investigate whether the vendor actually did have all the rights to operate the software. Facts admitted at trial to support this assertion, ostensibly to lead to the conclusion that the right to police was not fully exercised, included: (a) that other motion picture studios had investigated whether vendors had all the necessary rights to operate the software at issue; (b) that Disney had reason to investigate the vendor’s use of the technology because of a public dispute over the Academy Award’s Technical Achievement Award, and the article regarding the same published in The Hollywood Reporter where it was claimed that the vendor did not have a license to use the technology published one month before Disney entered into a contract with the vendor; and (c) that a click-through Rearden copyright notice appeared on computer screens that were used to process data during the technology’s use that was attended by Disney personnel.

The Ninth Circuit made it clear that Rearden was not required to prove that Disney knew with certainty that there was infringement: “case law has never suggested that, to be held vicariously liable for copyright infringement, a defendant must have an opportunity to know, with certainty, that the conduct in question infringes copyright.” Rather, the court stated: “Had Disney reasonably investigated [the vendor]’s authorization to use [the technology] when it initially contracted with [the vendor] … it could have discovered that, since February 2015, [the vendor] had been involved in active public litigation with Rearden over ownership of the [technology],” that there was a claim that the vendor “lacked the necessary licensing rights,” and that during the vendor’s work for Disney, Rearden secured a copyright registration claiming ownership in the work registered.

So, on remand, Disney will be faced with a judgment for actual damages and profits. However, no injunction is at issue to prevent future infringement. The Northern District of California Court previously “granted Disney’s motion as to any liability for [the vendor’s] use of MOVA after this Court’s issuance of the preliminary injunction in the SHST litigation, on the ground that Rearden failed to identify any evidence of direct financial benefit in connection with [the vendor’s] post-[preliminary]-injunction use of MOVA.” Rearden LLC v. The Walt Disney Company, Case No. 4:17-cv-04006 (ECF No. 758 at 4) (N.D. Cal. August 26, 2024).

According to the opinion, Disney did have an indemnity agreement with its vendor. Nonetheless, agreements with third parties to indemnify and to defend against their own infringement might provide only limited means to guard against liability and financial exposure. For example, such an agreement may be severely limited in its effect if the vendor that is providing the warranty does not have the means to provide a defense or satisfy its indemnity obligation. Further, although it is beyond the scope of this article to analyze commercial contracts for insurance for vicarious copyright infringement, it is important to consider whether any specific commercial general liability policy language might provide for a contractual duty for the insurer to defend or indemnify for such claims. Cf. Columbus Farmers Market, LLC v. Farm Family Cas. Ins. Co., 2006 WL 3761987, **6-9 (D. N.J. Dec. 21, 2006) (holding the policy of insurance at issue requires the insurer to defend its insured against claims of contributory and vicarious copyright infringement under that policy’s “advertising injury” definition; rejecting an argument for the application of the Known Loss Doctrine and not deciding the insurer’s duty to indemnify).

Finally, an indemnity agreement with a vendor may not adequately protect against an injunction prohibiting the continued use of the accused works.

The Rearden opinion serves as a reminder of the importance of having strong indemnity and defense agreements with content providers because upstream infringement can cause joint and several liability downstream. It also underscores the importance of exercising due diligence in selecting vendors and managing contracts.

Arthur Zorio aggressively represents clients in litigation of intellectual property disputes in addition to providing advice regarding protection and management of intellectual property assets.