U.S. Copyright Office, The Digital Millennium Copyright Act of 1998: U.S. Copyright Office Summary 8-13 (December 1998):  [Note that all references to section 512 have been revised to refer to section 513.]

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Title II:  Online Copyright Infringement Liability Limitation

    Title II of the DMCA adds a new section 512 to the Copyright Act to create four new limitations on liability for copyright infringement by online service providers.  The limitations are based on the following four categories of conduct by a service provider:

    1.    Transitory communications;
    2.    System caching;
    3.    Storage of information on systems or networks at direction of users; and
    4.    Information location tools.

New section 512 also includes special rules concerning the application of these limitations to nonprofit educational institutions.

    Each limitation entails a complete bar on monetary damages, and restricts the availability of injunctive relief in various respects.  (Section 512(j)).  Each limitation relates to a separate and distinct function, and a determination of whether a service provider qualifies for one of the limitations does not bear upon a determination of whether the provider qualifies for any of the other three.  (Section 512(n)).

    The failure of a service provider to qualify for any of the limitations in section 512 does not necessarily make it liable for copyright infringement.  The copyright owner must still demonstrate that the provider has infringed, and the provider may still avail itself of any of the defenses, such as fair use, that are available to copyright defendants generally.  (Section 512(l)).
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    Section 512 also contains a provision to ensure that service providers are not placed in the position of choosing between limitations on liability on the one hand and preserving the privacy of their subscribers, on the other.  Subsection (m) explicitly states that nothing in section 512 requires a service provider to monitor its service or access material in violation of law (such as the Electronic Communications Privacy Act) in order to be eligible for any of the liability limitations.

Eligibility for Limitations Generally
    A party seeking the benefit of the limitations ... must qualify as a "service provider."  For purposes of the first limitation, relating to transitory communications, "service provider" is defined in section 512(k)(1)(A) as "an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the user's choosing, without modification to the content of the material as sent or received."  For purposes of the other three limitations, "service provider" is more broadly defined in section 512(k)(1)(B) as "a provider of online services or network access, or the operator of facilities therefor."

    In addition, to be eligible for any of the limitations, a service provider must meet two overall conditions:  (1) it must adopt and reasonably implement a policy of terminating in appropriate circumstances the accounts of subscribers who are repeat infringers; and (2) it must accommodate and not interfere with "standard technological measures."  (Section 512(i)).  "Standard technological measures" are defined as measures that copyright owners use to identify or protect copyrighted works, that have been developed pursuant to a broad consensus of copyright owners and service providers in an open, fair and voluntary multi-industry process, are available to anyone on reasonable nondiscriminatory terms, and do not impose substantial costs or burdens on service providers.

Limitation for Transitory Communications

    In general terms, section 512(a) limits the liability of service providers in circumstances where the provider merely acts as a data conduit, transmitting digital cinformation from one point on a network to another at someone else's request.  This limitation covers acts of transmission, routing, or providing connections fo rthe infromation, as well as the intermediate and transient copies that are made automatically in the operation of a network.

    In order to qualify for this limitation, the service provider's activities must meet the following conditions:

Limitation for System Caching

    Section 512(b) limits the liability of service providers for the practice of retaining copies, for a limited time, of material that has been made available online by a person other than the provider, and then transmitted to a subscriber at his or her direction.  The service provider retains the material so that subsequent requests for the same material can be fulfilled by transmitting the retained copy, rather than retrieving the material from the original source on the network.

    The benefit of this practice is that it reduces the service provider's bandwidth requirements and reduces the waiting time on subsequent requests for the same information.  On the other hand, it can result in the delivery of outdated information to subscribers and can deprive website operators of accurate "hit" information -- information about the number of requests for particular material on a website -- from which advertising revenue is frequently calculated.  For this reason, the person making the material available online may establish rules about updating it, and may utilize technological means to track the number of "hits."

    The limitation applies to acts of intermediate and temporary storage, when carried out through an automatic technical process for the purpose of making the material available to subscribers who subsequently request it.  It is subject to the following conditions:

Limitation for Information Residing on Systems or Networks at the Direction of Users

    Section 512(c) limits the liability of service providers for infringing material on websites (or other information repositories) hosted on their systems.  It applies to storage at the direction of a user.  In order to be eligible for the limitation, the following conditions must be met:

    In addition, a service provider must have filed with the Copyright Office a designation of an agent to receive notifications of claimed infringement.  ...

    Under the knowledge standard, a service provider is eligible for the limitation on liability only if it does not have actual knowledge of the infringement, is not aware of facts or circumstances from which infringing activity is apparent, or upon gaining such knowledge or awareness, responds expeditiously to take the material down or block access to it.

    The statute also establishes procedures for proper notification, and rules as to its effect.  (Section 512(c)(3)).  Under the notice and takedown procedure, a copyright owner submits a notification under penalty of perjury, including a list of specified elements, to the service provider's designated agent.  Failure to comply substantially with the statutory requirements means that the notification will not be considered in determining the requisite level of knowledge by the service provider.  If, upon receiving a proper notification, the service provider promptly removes or blocks access to the material identified in the notification, the provider is exempt from monetary liability.  In addition, the provider is protected from any liability to any person for claims based on its having taken down the material.  (Section 512(g)(1)).

    In order to protect against the possibility of erroneous or fraudulent notifications, certain safeguards are built into section 512.  Subsection (g)(1) gives the subscriber the opportunity to respond to the notice and takedown by filing a counter notification.  In order to qualify for the protection against liability for taking down material, the service provider must promptly notify the subscriber that it has removed or disabled access to the material.  If the subscriber serves a counter notification complying with statutory requirements, including a statement under penalty of perjury that the material was removed or disabled through mistake or misidentification, then unless the copyright owner files an action seeking a court order against the subscriber, the service provider must put the material back up within 10-14 business days after receiving the counter notification.

    Penalties are provided for knowing material misrepresentations in either a notice or a counter notice. ...

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