In a dispute that touches on the intersection of copyright, contract law and cloud technology, the Second Circuit affirmed the dismissal of copyright claims against Barnes & Noble (“B&N”) related to ebook samples stored on a user’s B&N-provided cloud-based locker. Notably, the Second Circuit dismissed the case on contractual grounds, declining the opportunity to opine on two important modern copyright doctrines that are often implicated when users store copyrighted content on the cloud.

In Smith v., LLC, 2016 WL 5845690 (2d Cir. Oct. 6, 2016), an author contracted with Smashwords, an online ebook distributor, to market his book.  In accordance with this contract, the book was offered to B&N, which listed the book for sale on and made free samples available.  When a B&N customer downloaded a free sample (or purchased an ebook) the content was stored on a cloud-based digital locker associated with the customer’s account from which the content could be downloaded to devices whenever and wherever the user wanted.

During the term of the agreement, no one purchased the author/plaintiff’s work but one user downloaded a sample into their locker. The author subsequently terminated his agreement with Smashwords. However, the ebook inadvertently remained listed on B&N’s site for an additional six months.  At that time, users could no longer purchase the book or acquire a free sample through the B&N site, but B&N did not remove the free sample from the digital locker of the lone user who had downloaded it. In fact, that single user was permitted to access the sample in his or her cloud-based account twice following the plaintiff’s termination of his agreement with Smashwords.

The plaintiff claimed that allowing a customer to continue to access the validly obtained sample from his or her cloud‐based account two times after termination of the Smashwords agreement constituted copyright infringement.

The district court granted summary judgment in favor of B&N finding that the conduct at issue did not amount to direct infringement under the Second Circuit Cablevision precedent due to a lack of “volitional conduct” to support a copyright claim.  It also held that the conduct  did not amount to contributory infringement under the Supreme Court’s Sony-Betamax rule because B&N’s digital locker system was capable of “substantial non-infringing uses.”   On appeal, the Second Circuit declined to expound on these copyright law doctrines and instead affirmed the dismissal because the allegedly infringing conduct was authorized by the contracts at issue.

The Second Circuit noted that the agreement provided for the distribution of samples with a license “for free, noncommercial use, duplication and sharing,” without any provision to terminate the license for samples already distributed in the event the distribution agreement itself was terminated.  Indeed, the agreement contemplated robust sampling rights, and Smashwords prohibited authors from using digital rights management schemes that would limit a customer’s ability to consume the author’s work “as they see fit.”   As the appeals court ruled: “once the customer acquired the cloud‐based sample, the service that Barnes & Noble provided was no longer distribution; the service provided was access.”

In affirming the dismissal of the suit, the court ultimately concluded:

“Because the agreement does not provide for the license in the sample to terminate after the sample has been distributed, the plaintiff cannot sustain her burden to prove that providing cloud‐based access to validly obtained samples is beyond the scope of the license agreement.  Accordingly, the district court was correct to grant defendantsʹ motion for summary judgment, and we affirm the judgment, albeit on different grounds.”

While the appeals court’s reasoning did not center on the big issues in copyright law, the dispute underscores the importance for copyright holders to understand the scope of any content distribution license involving cloud storage by users, particularly when broad language is used with respect to the rights of the licensee (e.g., “right to distribute samples of the Work in any form of media,” “these samples will be licensed for free, non‐commercial use, duplication and sharing…”).  If this case is followed, it seems like courts may look closely at cloud-based contracts to analyze a contracting party’s right to distribute content differently from the end user’s right to access that content once it has been distributed.