Under U.S. law, a defendant in a copyright infringement case can incur secondary liability, or indirect infringement, when that party materially contributes to, facilitates, induces, or is otherwise responsible for directly infringing acts carried out by another party.

Proving such acts, known as vicarious copyright infringement, requires the defendant to have received a direct financial benefit from the infringing activity.

Unlike trademark law, which is codified in U.S. statutes, secondary liability rules in copyright matters have solely been a product of case law; courts, rather than Congress, have been the primary developers of theories and policies concerning secondary liability.

The copyright infringement lawsuit brought by CBS and Paramount Pictures against producer Alec Peters and his company, Axanar Productions alleges the defendants engaged in vicarious copyright infringement, and that they accrued a direct financial benefit from having done so.¹⁾

Vicarious copyright infringement requires a direct financial benefit from the infringement and the right and ability to supervise the infringing activity. Originally, the “direct financial benefit” element was interpreted to apply to financial benefits in proportion to the infringing activity, such as a royalty or commission “directly” related to the infringement. See, e.g., Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304 (2d Cir. 1963). Over time, however, the concept of “direct financial benefit” has been stretched to cover situations in which the financial benefit from the infringement was neither any immediate revenue nor any value correlated with the infringing activity itself. Thus, in Napster, “direct” financial benefit was found where the availability of infringing matter was said to act as a “draw” for web site users and where “Napster’s future revenue is directly dependent upon ‘increases in userbase.’” Napster, 239 F.3d at 1023.

Many attorneys believed, hitherto, that the Napster extension of “direct” financial benefit would be limited to circumstances in which the value of the entire enterprise, essentially, was tied to infringement, even if no revenues flowed directly from the infringement. That limiting reading was rejected by the Ninth Circuit in Ellison v. AOL. Though the plaintiff still must show that the infringing activity “constitutes a draw for [an online service’s] subscribers, not just an added benefit,” the extent of the draw need not be “substantial” for direct financial benefit to be found. Nonetheless, the Court of Appeals upheld summary judgment against Ellison’s vicarious liability claim because Ellison failed to show “that AOL attracted or retained subscriptions because of the infringement or lost subscriptions because of AOL’s eventual obstruction of the infringement.”²⁾