Definition of "Direct Financial Benefit" in the DMCA Title 17

Question

I run a website with pages for famous people, books, brands, movies, etc. Users can rate and discuss these things. Each page has a "profile picture", which is added by a user and then approved by a site moderator, to make sure it is non-offensive and meets quality standards.

I receive financial benefit by selling adspace.

The Digital Millenium Copyright Act, Title 17, Chapter 5, § 512, provides a safe harbor from copyrighted works added by users, as long as the website does not directly benefit financially from the work:

"A service provider shall not be liable for monetary relief, or, except as 
provided in subjection (j), for injunctive or other equitable relief, for 
infringement of copyright by reason of the storage at the direction of a user 
of material that resides on a system or network controlled or operated by or for 
the service provider, if the service provider...does not receive a financial benefit 
directly attributable to the infringing activity, in a case in which the service 
provider has the right and ability to control such activity..."

It could be argued that the user-added pictures make the site a more pleasant experience and therefore more profitable, but it is clear that they are not the main purpose of the site. Has the phrase "directly attributable to the infringing material" ever been concretely defined as used in this context?

Answer 1

Costar Group Inc. v. Loopnet, Inc., 164 F.Supp.2d 688 (D. Md., 2001) touched on this.

The court distinguishes Playboy Ent. v. Russ Hardenburgh, Inc., 982 F.Supp. 503 (N.D.Oh.1997) which held that "contributory liability could attach where infringing performances enhance the attractiveness of the venue to potential customers." (internal quotes omitted) This sounds like your concern. The Costar court stated explicitly that merely adding value does not constitute direct benefit.

In Costar the court found that

Whereas in Playboy and Fonovisa, the finding of added value to the defendant was evidence that the defendant induced the infringement, for the purposes of the DMCA, the financial benefit must be "directly attributable to the infringing activity." 17 U.S.C. § 512(c)(1)(B) (1998). CoStar might make an argument that the indirect type of benefit cited in Hardenburgh is also present here. However, such a benefit does not fit within the plain language of the statute. Accordingly, § 512(c)(1)(B) does not present a barrier to LoopNet remaining in the safe harbor.

You could also take a look at Columbia Pictures Indus., Inc. v. Fung, 710 F.3d 1020 (9th Cir., 2013)

the relevant inquiry is “ ‘whether the infringing activity constitutes a draw for subscribers, not just an added benefit.’

That case cites Ellison v. Robertson, 357 F.3d 1072 (9th Cir., 2004)

Ellison ultimately concluded that the financial benefit standard was not met, because there was inadequate proof that “customers either subscribed because of the available infringing material or cancelled subscriptions because it was no longer available.”

But back to Fung, check this out (I quote this in its entirety because it's not that long and it should lead you to your own conclusion):

Against this background, we note that we have never specified what constitutes a “financial benefit directly attributable to the infringing activity,” 17 U.S.C. § 512(c)(1)(B) (emphasis added), where, as here, the service provider's revenue is derived from advertising, and not from users. We do so now.

Here, the record shows that Fung generated revenue by selling advertising space on his websites. The advertising revenue depended on the number of users who viewed and then clicked on the advertisements. Fung marketed advertising to one advertiser by pointing to the “TV and movies ... at the top of the most frequently searched by our viewers,” and provided another with a list of typical user search queries, including popular movies and television shows. In addition, there was a vast amount of infringing material on his websites—whether 90–96% or somewhat less—supporting an inference that Fung's revenue stream is predicated on the broad availability of infringing materials for his users, thereby attracting advertisers. And, as we have seen, Fung actively induced infringing activity on his sites.

Under these circumstances, we hold the connection between the infringing activity and Fung's income stream derived from advertising is sufficiently direct to meet the direct “financial benefit” prong of § 512(c)(1)(B). Fung promoted advertising by pointing to infringing activity; obtained advertising revenue that depended on the number of visitors to his sites; attracted primarily visitors who were seeking to engage in infringing activity, as that is mostly what occurred on his sites; and encouraged that infringing activity. Given this confluence of circumstances, Fung's revenue stream was tied directly to the infringing activity involving his websites, both as to his ability to attract advertisers and as to the amount of revenue he received.

Edit to add:

There is also some legislative history that some courts point to at H.R.Rep. No. 105-551, Part 2. (I include the link to the closest thing I could find.) This language shows its age! I think the only thing that speaks to your issue is the last sentence (bc it's not you).

In determining whether the financial benefit criterion is satisfied, courts should take a common-sense, fact-based approach, not a formalistic one. In general, a service provider conducting a legitimate business would not be considered to receive a ‘financial benefit directly attributable to the infringing activity' where the infringer makes the same kind of payment as non-infringing users of the provider's service. Thus, receiving a one-time set-up fee and flat, periodic payments for service from a person engaging in infringing activities would not constitute receiving a ‘financial benefit directly attributable to the infringing activity.' Nor is subsection (c)(1)(B) intended to cover fees based on the length of the message (e.g., per number of bytes) or by connect time. It would however, include any such fees where the value of the service lies in providing access to infringing material.